Investment Highlights

• We maintain our BUY recommendation on RHB Bank with an unchanged fair value of RM6.80/share. We continue to peg the stock to FY22 P/BV of 0.9x, supported by an ROE of 10.0%. No changes to our earnings estimates.

• RHB Bank organized a virtual meeting to provide updates on the progress for its digital transformation programme which has been in place since 2017.

• The group allocated RM200mil for digital investments from 2018 to 2022 and RM300mil for IT modernization including cloud adoption in 2019–2022. These were intended to: i) increase digital transactions to 80.0%; ii) achieve a target of 50.0% in business originations from digital channels; iii) 15.0% revenue from digital ecosystem partnerships; and iv) attain an improved CI ratio of 45.0%.

• Thus far, the group has spent 65.0% or RM130mil of the allocation for digital investments. These were mainly on digital channel platforms (DCP), resources (talents) and other digital assets, which included the consultation and development fees for apps. Meanwhile, on investments allocated for IT modernisation, the group has spent 48.0% or RM144mil of the total amount budgeted.

• The group has seen positive results from its digital transformation journey. Digital transactions YTD until Aug 2021 have risen significantly to 93.5% (including ATM) and 85.0% (excluding ATM) compared to 64.2% and 45.9% respectively in FY17. In the terms of businesses originated digitally, these have has climbed to 25.0% for FY21 YTD vs. 0.6% in FY17.

• In 3Q21, the group’s digitally active customers continued to rise to 28.0% (FY20: 26.0%). With improved productivity and lower cost for customer acquisitions, the group’s CI ratio has steadily trended lower to 45.0% in 1H21 vs. 50.0% in FY17. We see room for further lowering of its CI ratio in the medium to longer term with the potential optimisation of branches as well as through higher employee productivity with more processes automated and increased availability of products and services digitally. The bank’s net promoter score (NPS) has improved to 11 in 2020 compared to -9 in 2017.

• For community banking, the segment’s digital strategy focuses on easy onboarding, seamless experience through internet and mobile banking, and ecosystem partnerships to provide value-added service to customers. For retail banking, in addition to the RHB MyHome app, which contributed 52.0% of its mortgage business, a partners’ app is also available. This app links customers, agents and the bank, providing RHB Bank with referrals from real estate agents, developers, insurance agents and other ePartners for mortgage deals. We understand that the partners’ app has contributed to 44.0% of the banks’ mortgage business.

• The availability of personal financing via available credit card balances under CashXcess has also been rolled out to the retail customers.

• For SMEs, the digital strategy is to focus on: i) on boarding new customers; ii) managing banking needs effortlessly; and iii) driving customer stickiness and loyalty. The group has launched the SME online financing app in Aug 2020 which allowed borrowers to submit their applications digitally. This was in addition to the SME e-solutions launched in April 2020 using the application programming interface (API) integrating the bank’s Reflex (transaction banking) platform with solutions for financial accounting, payrolls and DuitNow QR. We understand that there are presently 7 partners offering different solutions (financio, kakitangan, storehub. Ikey edutech, SQL, Talenox, Arms and DuitNowQR).

• As for wholesale banking, Reflex, the transaction banking platform, has been enhanced for businesses to manage their accounts, payments, collections and liquidity. Live FX is now a new feature for Reflex, enabling real-time enquiry into FX rates and early settlements of FX contracts. Customers utilising Reflex have grown by 15.3% YoY to 128,000 in 2021 YTD.

• The group targets to increase the digital transactions to more than 95.0% and achieve 50.0% business origination via digital channels by 2023. We view these targets within reach given that the bank has already attained 93.0% and 25.0% respectively in terms of digital transactions and business originations digitally. RHB Bank also aspires to be among the top 3 in DuitNow transactions and achieve an NPS score that is above the industry average.

• In terms of the ranking for the best digital financial institution, RHB was placed 6th out of 14 Asean banks. Meanwhile, among local banks, it was ranked 2nd.

Source: AmInvest Research - 29 Sept 2021