Investment Highlights

• We maintain BUY on RHB Bank with a revised fair value of RM6.90/share (previously: RM6.80/share). We peg the stock to FY22 P/BV of 0.9x, supported by an ROE of 10.3%. We fine-tune our FY21/22/23 earnings by +6.1%/+2.7%/+3.8% after adjusting estimates for Islamic banking income and credit cost.

• RHB Bank recorded higher normalised earnings of RM766mil (+9.3% QoQ) after stripping out mod loss related to the Pemulih programme net of tax of RM131mil in 3Q21. The improved earnings were attributed to higher total income, lower operating expenses (opex) partially offset by increase in provisions.

• 9M21 underlying net profit came in at RM2.15bil (+15.5% YoY), supported by stronger net interest income (NII) partially offset by lower non-interest income (NOII), higher opex and provisions. Cumulative earnings exceeded expectations, making up 83.7% of our and 86.4% of consensus estimates. The variance to our projection was due to higher-than-expected total income.

• The group’s loan expanded at a faster pace of 6.7% YoY in 3Q21 vs. 5.7% YoY in 2Q21. It was supported by mortgages, SME, commercial loans and growth of overseas loans (mainly Singapore). Domestic loans grew 4.4% YoY ahead of the industry’s 2.9% YoY.

• Normalised NIM excluding the impact of mod loss declined marginally by 2bps QoQ to 2.13% in 2Q21.

• Based on underlying total income (excluding mod loss), JAW was positive of 14.9% YoY for 9M21.

• 9M21 credit cost of 0.44% was slightly above management’s guidance of 0.40% for FY21.

• GIL ratio improved for most segments QoQ. Management alluded to a loan recovery in Singapore of RM260mil in 3Q21 related to the power sector. Also, there were writeoffs and recoveries through disposals of assets from some loans affected by the Asian financial crisis.

• Our net profit for FY22 has been lowered by 9.8% to account for additional taxes from the prosperity tax of RM300mil. As this is a one-off additional tax, our core net profit for FY22 of RM3.0bil is unchanged.

Source: AmInvest Research - 1 Dec 2021