RHB’s 4Q21 core profit was up 44% YoY, thanks to lower provision for impaired financial assets. Also, NIM widened sequentially and loans growth held steady. However, GIL ratio trended upwards. Overall, results were within expectations but we cut FY22 profit by 2% to factor in prosperity tax impact and raise FY23 bottom-line by 5% to account for better top-line growth and lower provision for bad loans. We continue to like RHB for its high CET1 ratio and undemanding valuations. Retain BUY recommendation but with a higher GGM-TP of RM7.00 (from RM6.60), based on 0.91x FY23 P/B.

Within expectations. After stripping away modification losses, RHB chalked in 4Q21 earnings of RM658m (-14% QoQ, +44% YoY), bringing FY21 sum to RM2.8bn (+22% YoY); this was within our expectations, making up 103% of full-year forecasts but was ahead of consensus (at 107%).

Dividend. Final DPS of 25sen was proposed (4Q20: 7.65sen; FY21: 40sen vs FY20: 17.65sen). Ex-date TBD later.

QoQ. Bottom-line decreased 14% on the back of negative Jaws (total income -8% vs opex +6%) and higher effective tax rate (+9ppt). At the top, non-interest income (NOII) across the board was weak (-29%). That said, net interest margin (NIM) widened 3bp.

YoY. Lower provision for impaired financial assets (-86%) helped earnings to jump 44%. That said, its performance was capped by negative Jaws (total income -7% vs opex +2%) and higher effective tax rate (+9ppt). Again, NOII was a drag (-29%).

YTD. The 22% rise in net profit was thanks to positive Jaws (total income grew 3ppt faster than opex) and lower bad financial asset allowances (-36%).

Other key trends. Both loans and deposits growth held steady at +6.7% YoY (3Q21: +6.7%) and +7.5% YoY (3Q21: +8.8%) respectively. As a result, loan-to-deposit ratio (LDR) remained flat sequentially at 91%. For asset quality, gross impaired loan (GIL) ratio spiked up 17bp QoQ to 1.49%, no thanks to its corporate segment.

Outlook. We expect sequential NIM to hold steady at current levels before contracting again due to deposit rivalry. That said, this is seen to expand when BNM hikes OPR later this year. Also, loans growth is expected to chug along given economic recovery. Separately, GIL ratio is likely to creep upwards but we are not overly worried as RHB has made heavy pre-emptive provisioning in FY20-21 and in our view, credit risk has been adequately priced in by the market, looking at the still elevated NCC assumption applied for FY22 by both us and consensus (above the normalized run-rate but below FY20-21’s level).

Forecast. Despite the positive set of results, we cut FY22 earnings by 2% to factor in prosperity tax impact but raise FY23 profit by 5% to account for better top-line growth and lower loan loss provision.

Reiterate BUY but with higher GGM-TP of RM7.00 (from RM6.60), after rolling our valuations to FY23. This TP is based on 0.91x P/B (from 0.87x) with the assumptions of 11.1% ROE (from 9.7%), 11.9% COE, and 3% LTG. This is above its 5-year mean of 0.81x but largely in line with the sector’s 0.92x. In our view, the valuation multiple is warranted, since its ROE generation is similar to sector average while the premium is reflective of ample market liquidity. We still like RHB for its high CET1 ratio (indicating headroom for attractive dividend payout in the future) and undemanding valuations.

Source: Hong Leong Investment Bank Research - 1 Mar 2022