Investment Highlights

• We maintain our BUY recommendation on RHB Bank with a revised fair value (FV) of RM6.70/share from RM6.80/share pegging the stock to a lower FY24F P/BV of 0.9x supported by ROE of 10.5%. No changes to our neutral 3-star ESG rating.

• 6M23 core earnings were within expectations making up 48.9% of our and 52.8% of consensus estimates. Nevertheless, we reduced FY23F/24F/25F earnings by 6.5%/7.5%/7.1% to factor in lower NIM assumptions.

• The group’s 6M23 core earnings of RM1.57bil grew by 13.3% YoY. The improvement was attributed to a stronger non-fund based income, lower provisions from a net write back of RM85.5mil which had offset a weaker fund based income on the back of a higher funding cost.

• The group’s non-fund based income grew by 46.3% YoY in 6M23, driven by higher FX, derivatives and stronger investment and trading income.

• Loan growth eased to 4.5%YoY in 2Q23 vs. 6% YoY in 1Q23. The expansion in loan book was supported by growth in mortgages, HP, SME and loans in Singapore. Domestic loans grew by 3.1% YoY, below the industry’s 4.4% YoY growth.

• Lower 2Q23 NIM compression of 8bps QoQ to 1.82% (1Q23: compression of 46bps QoQ). We see a gradual ease in funding cost ahead which is likely to see an improvement in interest margin.

• Operating expenses grew by 6.5% YoY in 6M23 driven largely by higher personnel cost from collective agreement adjustments and increase in establishment cost. With a flattish total income, CI ratio rose to 47.5% in 6M23 (6M22: 44.9%), above the group’s target of ≤44.6% for FY23.

• 6M23 credit cost of -4bps was lower compared to the 16bps in 6M22. Recall in 1Q23, Covid-19 related management overlays stood at RM411mil. We understand that RM284mil of that amount has been reversed with RM127mil reallocated.

• The group’s GIL ratio climbed to 1.64% in 2Q23 vs. 1.59% in 1Q23 contributed by upticks in the group community banking loans (mortgage, auto finance, unsecured and SME).

• RHB Bank recorded a higher underlying earnings of RM809mil (+6.2% QoQ) in 2Q23 contributed largely by lower provisions. 2Q23 saw a net write back of RM131.5mil due to the reversal of management overlays.

• An all cash dividend of 15 sen/share (payout: 40.9%) has been declared in 6M23 similar in quantum to 6M22.

Source: AmInvest Research - 30 Aug 2023