Investment Highlights

• We maintain our BUY recommendation on RHB Bank with a revised fair value of RM7.40/share from RM7.30/share after rolling over our valuation to FY23F. We peg the stock to FY23F P/BV of 1.0x supported by an ROE of 11.2%.

• No changes to our earnings estimate as 1QFY22 core earnings were within expectations, making up 21.9% of our estimate and 25% of street projection.

• RHB Bank recorded marginally lower normalised earnings of RM676mil (-0.4% YoY) after excluding the impact of Cukai Makmur amounting to RM75.6mil in 1QFY22. The drop in earnings was attributed to lower non-interest income from a decline in fees, net trading and investment income.

• The group’s loan grew by 7% YoY supported by mortgages, HP, SME, corporate loans and growth of Singapore’s loans (4QFY21: 6.7% YoY). Domestic loans expanded by 5.6% YoY, outpacing the industry’s 4.6% YoY growth.

• Normalised NIM, excluding the impact of mod loss, declined by 5bps YoY to 2.11% in 1QFY22 due to slower CASA growth and higher funding cost mainly from FDs. Every 25bps hike in OPR will result in a 3bps lift in NIM.

• Based on underlying total income (excluding mod loss), CI ratio was 45.1% in 1QFY22.

• Provisions for loan losses declined by 18.8% YoY. The group further topped up its provisions (management overlays) of RM90mil in 1QFY22. This brought the group’s total management overlays to RM909mil.

• 1QFY22 credit cost of 29bps was within management’s guidance of 30bps for FY22.

• Group GIL ratio inched higher to 1.5% in 1QFY22 (4Q21: 1.49%). This was due to a slight uptick in the domestic SME and corporate loans’ GIL ratios. Higher overall stage 2 loans ratio rise to 7.3% in 1QFY22 compared to 7.1% in 4QFY21 came from upticks in retail, SME and corporate loans. Nonetheless, end-Apr 2022 saw an improvement in the stage 2 ratio of retail and SME loans.

Source: AmInvest Research - 31 May 2022