Investment Highlights

• We maintain our BUY recommendation on RHB Bank with a revised fair value (FV) of RM7.10/share (previously RM7.40.share) after lowering FY23F BV/share. We continue to peg the stock to FY23F P/BV of 1.0x, supported by ROE of 11.2%.

• No changes to our neutral 3-star ESG rating. We tweaked our FY23F/24F earnings by +3.3%/+7% after adjusting our net interest margin (NIM) and loan growth assumptions.

• 12M22 core earnings were within expectations, coming in 1% below our estimate while exceeding consensus, 19% above street’s projection.

• For 12M22, the group reported core earnings of RM3.1bil (+12% YoY), supported by higher net-fund based income from a stronger net interest margin (NIM) and loan expansion coupled with lower loan loss allowances. The group’s non-fund based income was dragged by a decrease in fee income, insurance underwriting surplus, net trading and investment income.

• RHB Bank recorded a higher normalised earnings of RM937mil (+17.7% QoQ) in 4Q22 after excluding the impact of Cukai Makmur. This was contributed by stronger net-fund and non-fund based income coupled with lower provisions with a write back in Covid-19-related provisions.

• The group’s loan slowed down to 6.9% YoY in 4Q22 (vs. 7.8% YoY in 3Q22) supported by mortgages, HP, SME and commercial segments as well as expansion of loans in Singapore and Cambodia. Domestic loans grew by 5.3% YoY, slightly lower than the industry’s 5.7% YoY growth.

• 4Q22 NIM expanded by 9bps QoQ to 2.36%, contributed by OPR hikes and expansion in loan base. For FY22, NIM rose by 4bps to 2.24%.

• Operating expenses grew 5.5% YoY in 12M22 due to higher personnel, establishment, marketing, administration and general expenses. CI ratio improved slightly to 44.7% in 12M22 within the group’s target of ≤ 45% for FY22.

• Provisions for loan losses fell by 46.3% YoY in 12M22, attributed to lower ECL on loans and bad debt recoveries. 12M22 credit cost of 15bps was well below management’s guidance of 30bps for the year. As a result of some writeback in Covid-19-related provisions in 4Q22, management overlays have been reduced to RM410mil.

• The group’s GIL ratio decreased slightly to 1.5% in 4Q22. Stage 2 loans ratio trended lower QoQ to 5.47%.

• RHB Bank declared a 2nd interim dividend of 25 sen per share (cash: 20 sen and portion electable for DRP: 5 sen). This led to total dividends of 40 sen per share (payout: 62.5%) for 12M22.

Source: AmInvest Research - 28 Feb 2023