Investment Highlights

• We maintain our BUY recommendation on RHB Bank with an unchanged fair value (FV) of RM7.40/share, pegging the stock to FY23 P/BV of 1.0x, supported by an ROE of 11.2%. No changes to our neutral 3-star ESG rating. We tweak our FY22F earnings by -0.7% after adjusting our NIM assumption slightly lower post-2QFY22 results briefing.

• 6MFY22 core earnings made up 44% of our estimate and 53% of street projection. We deem this to be within our expectation on stronger 2H22 total income prospects with higher net interest income (NII) from OPR hikes. We also expect an improvement in its treasury income from a more favourable movement in MGS yield which will benefit the valuation of the group’s securities portfolio.

• The group reported 6MFY22 core earnings of RM1.4bil, a modest increase of 2% YoY, supported by higher NII and decline in allowances for loans losses. Year to date (YTD), lower market-related fee income and a decrease in treasury income from a volatile market dampened the group’s noninterest income (NOII).

• The group’s loan accelerated to 7% YoY, supported by mortgages, HP, SME and growth of loans in Singapore. Domestic loans expanded by 6.1% YoY surpassing the industry’s 5.6% YoY growth.

• Operating expenses were flat in 6MFY22 reflecting tight control on cost. Based on underlying total income, CI ratio was 45.4% in 6MFY22.

• Provisions for loan losses fell by 52% YoY in 6MFY22 attributed to lower ECL on loans, the release of management overlays of RM35mil from the RM90mil raised in 1QFY22. Also, there were some write-backs in provisions for certain corporate loans related to the oil & gas sector in 2QFY22. 6MFY22 credit cost of 16bps was within management’s guidance of 30bps for FY22.

• 2QFY22 saw RHB Bank recording a higher normalised earnings of RM732mil (+8% QoQ) after excluding the impact of Cukai Makmur. This was contributed by stronger NII and lower provisions, partially offset by a drop in NOII from reduced fees, insurance underwriting, net trading and investment income.

• 2QFY22 NIM rose 7bps QoQ to 2.23%, contributed by a higher loan base and the 25bps OPR hike in May 2022. Group GIL ratio inched higher to 1.6% in 2QFY22. Nevertheless, stage 2 loans ratio trended lower QoQ.

• The group declared an interim dividend of 15 sen per share (cash: 10 sen and 5 sen electable for DRP), representing a payout ratio of 51%. Valuation of the stock remains undemanding, trading at an attractive FY23 PB/V of 0.8%. We continue to like the stock due to the group’s strong capital position among peers with a CET1 ratio of 16.6%.

Source: AmInvest Research - 30 Aug 2022