Investment Highlights

• We maintain our BUY recommendation on RHB Bank with unchanged fair value (FV) of RM7.40/share based on FY23 P/BV of 1.0x supported by an ROE of 11.2%. Our FV reflects a neutral 3-star ESG rating (Exhibit 5).

• We make no changes to our earnings estimate.

• Recall, the group launched its 3-year strategy (2022– 2024), TWP24 (Together We Progress 2024). The 3 key objectives of the strategy are: i) to be the primary bank for clients; ii) prioritising customer experience; and iii) driving quality growth (Exhibit 1).

• Through this strategy, RHB Bank aims to achieve an ROE of 11.5%, CI ratio of ≤ 44.5% by 2024 and net promoter score of top 3 among domestic banks. In tandem with this, the group intends to achieve the following by 2024: i) increase process automation from 25% presently to 50%; ii) raise IT systems modernisation from 50% to 65%; iii) migrate workloads by 10–15% from nought to cloudbased for higher cost savings; and iv) raise international business contribution from 10% to 20%, driven largely by operations in Singapore and Cambodia.

• Management provided further details on the TWP24 strategy via an analyst briefing yesterday. The strategy entails specific focus areas of different business segments.

• The focus of community banking will be personalised financial solutions among the affluent and mass affluent. For the affluent segment, the bank targets to grow its wealth management AUM by >2x by 2024 through sales of investment products. Besides, the group aspires to become the leader in Islamic wealth management by offering solutions for purification and estate planning as well as focussing on mortgage and auto financing by leveraging IT analytics and digitalisation.

• By 2024, RHB Bank is hopeful of growing its mass affluent customer base by more than 1.5x by offering tailored solutions based on the staging of the customer’s life cycle.

• Presently, the group’s market share for SMEs stands at 9.5%. By 2024, it seeks to increase that to 12%, supported by 3-year CAGR growth of 9–10% for SME assets. The group targets to grow its retail SME business via customised community lending, which are secured propositions supported by government guarantees. It aims to raise the share of RSME/total SME assets to 77% by the end of 2024. The group will also be rolling out digital solutions. On collateralisation, we are comforted by the fact that 80% of the group’s SME loans are secured. Meanwhile, on the mid-market SME loans, the focus will be to grow sustainable financing and capture ESG opportunities to transition to a low-carbon economy.

• As for the group’s wholesale banking, RHB Bank targets to expand its small and mid-cap corporate clients by 14% by 2024. It aims to achieve 5% growth per annum for wholesale banking loans with a higher growth in assets contributed by customers outside Klang Valley. This will be via the deepening of customer relationships, expertise in targeted segments with availability of industry-specialised RMs, simplifying and offering integrated digital solutions to clients as well as championing ESG initiatives. We see this as a realistic and achievable target, based on the growth of 2% YoY which has already been achieved in 1Q22. We understand that 60–65% of the group’s corporate loans are collateralised.

• RHB Bank will enhance its tie-ups with merchants and 3rd party digital solution providers to improve the group’s transaction banking and offer comprehensive payment solutions. Its goal is to become the top 3 merchantacquiring bank and achieve a top 4 position for trade finance in Malaysia by the end of TWP24. RHB Reflex, a solution which has already been rolled out in Singapore and Cambodia, will be extended to the bank’s other footprint.

• On its insurance business, the group intends to expand the size of agency network by 1.7x by the end 2024 and build digital capabilities to increase digital gross written premium (GWP) contributions to overall GWP by 5x. Additionally, it strives to achieve a CAGR growth of 10% per annum from 2022 to 2024 for premiums, supported by innovative insurance products.

• For Islamic banking, the objective is to be strong in Islamic wealth management business by offering end-to-end solutions covering wealth distribution, protection and purification. Besides, the group plans to expand SME financing. RHB Bank aims to increase the share of Islamic financing as a percentage of total group loans to more than 50% while achieving 18% per annum growth in Islamic assets.

• The TWP24 strategy also aims to expand profits from international business operations (mainly Singapore and Cambodia) with an integrated corporate and investment banking (CIB) model. The group will be launching a digital retail bank in Cambodia this year. For 2022–2024, Singapore loans have been targeted to expand by 15% per annum while in Cambodia, the target is to grow financing by 20% per annum.

• The group has sustained its AA rating by the MSCI for ESG based on the latest review on 27 June 2022. Cumulatively, it has supported more than RM10bil of sustainable financial services, of which more than 50% were green financing. The group targets to mobilise RM20bil of sustainable financing, enriching and empowering communities of more than 2 million people by 2026. As with the aspirations of most banks, RHB Bank aims to achieve a carbon neutral position in its operations by 2030.

• To support the growth of business via IT modernisation, analytics and smart automation, a capex for TWP24 of RM500mil will be allocated (RM400mil for IT modernisation and RM100mil for services improvement/automation).

• We continue to like RHB Bank for its undemanding valuation, trading at 0.8x FY23F P/BV, strong capital position with a CET1 ratio of 17.2% and an attractive dividend yield of 7% for FY23F.

Source: AmInvest Research - 5 Aug 2022