Investment Highlights

• We maintain our BUY recommendation on RHB Bank with higher fair value of RM6.80/share (previously: RM6.15/share) after rolling over our valuation to FY22. We peg the stock to FY22 P/BV of 0.9x, supported by a higher ROE of 10.0%. We raise our FY21//22 earnings by 8.6%/9.4% to reflect higher NII and NOII estimates.

• 4Q20 underlying earnings came in at RM329mil (-42.7% QoQ), impacted by higher provisions despite recording stronger total income.

• For 12M20, its underlying net profit of RM2.19bil (-13.5% YoY) was within expectations, making up 98.2% and 103.5% of our and consensus estimate respectively. The lower cumulative core earnings were due to higher provisions set aside, which included management overlays and adjustments to macroeconomic factors for the impact of Covid-19 that offset a higher normalised total income of 5.3% after adding back modification loss.

• The group’s loan growth was sustained at 5.6% YoY for 12M20. Loan expansion was supported by mortgages, auto finance, SME loans and growth of overseas loans (mainly Singapore). Corporate loan growth was flat. Domestic loans expanded at faster pace of 4.5% YoY ahead of the industry which grew 3.4% YoY.

• NIM slipped by 6bps YoY in to 2.06% for 12M20 due to OPR cuts. 4Q20 saw a recovery in interest margins from the repricing of liabilities which lowered funding cost.

• Based on the underlying total income, JAW was a positive 5.3% YoY in 12M20, resulting in lower CI ratio of 47.1% (45.6% if based on normalised income).

• 12M20 credit cost rose to 0.58% due to the pre-emptive provisioning of RM556mil taken for the impact of Covid- 19 that comprised RM282mil as management overlays and another RM274mil from adjustments of macroeconomic variables (MEVs). The group’s GIL ratio inched higher to 1.71% due to upticks in retail loans (mortgage, auto finance, and unsecured loans) after the end of the moratorium while GIL ratio for business loans improved QoQ.

• The group proposed a final dividend of 7.65 sen/share bringing FY20 total dividends to 17.65 sen/share (payout: 34.8%). This was slightly lower than our projection of 22.0 sen/share.

Source: AmInvest Research - 1 Mar 2021