RHB hosted a corporate day for its Business Banking Group. RHB outlined the strategy to grow in the SME segment given a massive opportunity for SMEs to drive the economy further. RHB will focus on small scale SME segment and leverage on the usage of digitalisation to grow this as it has proven a success strategy so far. Our forecast is unchanged and we maintain our BUY rating with unchanged TP of RM6.00 based on GGM of (i) COE 11.5% of (ii) WACC of 9.6%.

RHB hosted a corporate day for its Business Banking Group. We came back feeling more positive as the Group shared its aspiration to grow in the SME segment given its massive opportunity.

Opportunity in the SME segment. RHB recognises good opportunities in the SME segment as it is expected to continue to outperform the overall economy. This is further proved by the fact that 98% of all businesses in Malaysia are from the SME size. Within the segment, small SMEs are the fastest growing with CAGR of 8.4% from 2010-2015.

Strategy under FIT22. Under RHB’s FIT22, SME and transaction banking are the preferred segments as the engine growth in the next 4 years. RHB aims for its SME segment to be top 3 SME Bank in Malaysia (number 4 currently) and SME loans to contribute 20% of its domestic loan growth (16% currently). To realise the strategy. RHB outlined several strategies in the transaction and SME segments namely (i) focus on small-scale SMEs, (ii) continue to build a connected ecosystem, (iii) focus on profitability and (iv) leverage on digitalisation.

Distribution network. To support its SME expansion, RHB leverages on its large distribution network of 31 business centres, 198 branches, and 22 trade windows. In addition, there will be a dedicated personalised relationship manager (RM) equipped with iSmart tools to address the needs and a better understanding of the potential customer.

Digitalization initiative. The iSmart tools and online SME-financing (launched recently) will be a game changer for RHB as it will cut the approval time within two days and disburse the loan within five days as it is connected seamlessly to the other relevant departments and credit agency biro. In addition, the usage of big data and advanced analytics will help RHB to make a wise decision in the future in better understanding customer behaviour.

All in. We are positive with RHB’s move to focus on small-scale SME segment given the strong opportunity in the segment. So far RHB’s strategy has been positive with the group’s business banking loan growth driven by retail SME segment with growth of 13.8% YoY in 1H18. Nonetheless, RHB is selective to grow its asset-based, especially on property financing and is cautious on loans for purchase of commercial complexes.

Forecast. Maintain.

Maintain BUY, TP: RM6.00. RHB is our top pick for the sector. RHB is expected to benefit from the rebalancing of loan book towards more consumer and SME segments which carries more profitable yields. Recovering overseas income (mainly from higher oil price) and lower provision is expected to boost its ex-Malaysia contribution despite tightening its credit underwriting. Maintain BUY rating with unchanged TP of RM6.00 based on GGM of (i) COE 11.5% of (ii) WACC of 9.6%.

Source: Hong Leong Investment Bank Research - 2 Oct 2018