Investment Highlights

• We maintain our BUY recommendation on RHB Bank with a revised fair value of RM6.15/share (previously: RM5.70/share). We peg the stock to FY21 P/BV of 0.8x supported by an ROE of 8.4%. We raise our FY20/21/22 earnings by 5.4%/3.4%/4.9% to reflect higher NIM and loan growth assumptions. Our credit cost assumptions for FY20/21 have been increased slightly to 0.45%/0.35%.
• 3Q20 underlying earnings came in at RM574mil (-18.4% QoQ). This led to a 9M20 underlying net profit of RM1.86bil (-1.8% YoY) which was above expectations, making up 88.0% and 93.7% of our and consensus estimate respectively. The variance to our expectation was due to higher-than-expected NII from stronger loan growth and lower NIM compression. Cumulative core earnings were marginally lower due to higher provisions set aside (management overlays and adjustments to macroeconomic factors) for the impact of Covid-19.
• The group’s loan growth improved to 5.6% YoY from 4.9% YoY in 2Q20. Loan expansion was supported by mortgages, SME loans and growth of overseas loans (mainly Singapore). Corporate loan growth was flat. Domestic loans expanded at a faster pace of 4.7% YoY compared to 3.4% YoY in the preceding quarter, and it was ahead of the industry’s growth of 4.4% YoY.
• NIM slipped by 6bps QoQ in 3Q20 to 1.99%. 3Q20 saw an OPR reduction of 25bps. 4Q20 is likely to see a recovery in interest margins from the repricing of liabilities.
• CASA momentum remained strong, lifting CASA ratio to 31.3% (2Q20: 28.6%).
• Based on underlying total income, JAW was a positive of 5.1% YoY in 9M20 with a CI ratio of 45.3%.
• 9M20 credit cost rose to 0.38% due to the pre-emptive provisioning of RM526mil taken for the impact of Covid19 which comprised RM305mil as management overlay and another RM160mil from the adjustments of macroeconomic factors (MEFs). The group’s GIL ratio declined to 1.69% due to intensified recovery efforts as well as benefitting from the placement of most retail and SME loans under the moratorium.

Source: AmInvest Research - 1 Dec 2020