• RHB Bank’s FY23 net profit was 4% below our forecast due to lower-than- expected net interest income (NII).

• We project EPS growth of 6.8% in FY24F, underpinned by 3.8% growth in NII and 14.5% decline in loan loss provisioning.

• Reaffirm Add, given its highest dividend yield in the sector (7% in CY23) and enticing valuation (CY24F P/E of 8.1x vs. sector average of 10.3x).

FY23 net profit below our expectation

RHB Bank’s FY23 net profit was 4% below our forecast, due to lower-than-expected NII. However, it was within street expectation at 98% of Bloomberg consensus estimate. On a positive note, its FY23 DPS of 40 sen (which translated to attractive dividend yield of 7%) was above our projection of 34 sen. Despite the non-recurrence of Cukai Makmur taxation, RHB Bank’s net profit only rose 4.8% in FY23, dragged down by a 14.7% decline in NII (caused by a 42bp contraction in net interest margin).

4Q23 net profit dragged down by lower NII

Despite the non-recurrence of Cukai Makmur taxation, RHB Bank’s 4Q23 net profit declined 24% yoy, dampened by a 17.5% yoy decline in NII. Another earnings drag was the 532.1% yoy surge in loan loss provisioning (mainly from international businesses and corporate accounts). On the other hand, the positive take from the 4Q23 results was the bank’s ability to keep a rein on the growth of its overheads, which was flattish (-0.3% yoy) in 4Q23.

We see 6.8% EPS growth in FY24F

We are projecting EPS growth of 6.8% in FY24F, underpinned by a 3.8% increase in NII and a 14.5% decline in loan loss provisioning.

FY24-25F net profit cut by c.6.5%

We cut our FY24-25F net profit forecasts by c.6.5%, as we lower our projection of FY24- 25F NII by about 7%. Consequently, our DDM-based target price is reduced from RM6.70 to RM6.38 (cost of equity of 11%; terminal growth rate of 4%).

Reaffirm Add on RHB Bank

We reaffirm our Add call on RHB Bank, given its enticing dividend yield (7% for FY23 and 6.2% for FY24F). Its valuation is also attractive with CY24F P/E of 8.1x (vs. the sector’s average of 10.3x). Resumption of its NII growth in FY24F on the back of the bank’s increased focus on managing its cost of funds could re-rate its stock. Downside risks include further contraction in its net interest margin, and a sharp deterioration in its asset quality which could lead to higher loan loss provisioning (LLP) in FY24-25F.

Source: CGS-CIMB Research - 28 Feb 2024