We are positive with RHB’s digital initiatives, after seeing the strong progress and achievements they made within the past couple of years. In our opinion, the bank will continue to gain strides with its digital journey and meet most of the FY23 targets that were set out. Overall, our forecasts were unchanged. We still like the stock for its undemanding valuations, high CET1 ratio, and large FVOCI reserve to buffer against potential yield curve volatility. Maintain BUY and GGM TP of RM6.85, based on 0.90x FY22 P/B.

Yesterday, RHB held a Digital Day to share on more its digital transformation journey (strategies, initiatives and progresses) to the investment fraternity. We summarize the key-takeaways in this report.

Key digital initiatives over the past 4 years anchored around: (i) boosting operational excellence to lift productivity, customer service and compliance, (ii) institutionalizing digital big data, analytics, and artificial intelligence to spur revenue growth and reduce cost, (iii) digitalizing customer journey to reinvent acquisition and engagement models, (iv) responding to the local virtual banking challenge, (v) modernizing IT capabilities to improve competitiveness, together with (vi) building ecosystems via enhanced client centricity to create differentiation.

Accomplishments. Thanks to the above efforts, digitally active customers expanded, making up 28% of total client base (+6ppts in 2 years). Moreover, there is an increase in digital transactions to 94% from 64% in FY17 (exceeded FY22 target of 80%) and digital acquisition (25% originated from digital channels vs FY17: <1%). Also, cost-to income ratio (CIR) has improved 5ppt to 45% over the past 4 years and NPS rose to +11 (FY17: -9). Besides, RHB benefitted from: (i) faster speed-to-market given c.2.4x accelerated speed for product launch process and c.3.4x quicker speed for marketing campaign, along with (ii) better productivity, seeing 34% output improvement.

Medium-term ambitions. Heading into FY23, RHB targets: (i) 15% of its revenue to derive from ecosystem partnerships, (ii) to raise digital transactions to beyond 95%, (iii) 50% of its customer acquisition to be done via digital origination, (iv) to be Top 3 in DuitNow transactions, and (v) to achieve NPS above industry mean. In order to attain the above goals, RHB will double down on its 4-pillar strategies: (i) customer centric journeys, (ii) engagement and acquisition, (iii) accelerating digital payments, and (iv) digital enablement across the region.

Forecast. Unchanged since there were no material positive/negative updates.

Maintain BUY and GGM-TP of RM6.85, based on 0.90x FY22 P/B with assumptions of 9.6% ROE, 10.4% COE, and 3.0% LTG. This is above its 5-year mean of 0.81x but in line to the sector’s 0.90x. We believe the valuation yardstick is warranted, since its ROE output is close to sector average and the premium is reflective of ample market liquidity. Moreover, demand is returning for stocks with recovery, reopening, and deep value attributes. Overall, we are positive with RHB’s digital initiatives, seeing that they have bore fruits: (i) NPS now ranked 4th among domestic banks, (ii) placed 6th position out of 14 among partaking ASEAN banks in the 2021 The Asia Banker’s Best Digital Financial Institution and came in 2nd when stacked against other local banks. Also, we continue to like RHB for its high CET1 ratio and large FVOCI reserve to buffer against any volatile yield curve.

Source: Hong Leong Investment Bank Research - 29 Sept 2021