RHB’s 1Q22 core profit fell 9% QoQ, no thanks to lower total income and higher loan loss provision. Also, NIM slipped sequentially. However, loans growth and GIL ratio held steady. Overall, results were within expectations and thus, FY22- 23 forecasts were kept. That said, we introduce FY24 financial projections. We continue to like RHB for its high CET1 ratio (indicating headroom for attractive dividend payout in the future) along with undemanding valuations. Retain BUY and GGM-TP of RM7.00, based on 0.93x FY23 P/B.

Largely in line with estimates. After removing modification losses (in 1Q & 4Q21), RHB posted 1Q22 core net profit of RM600m (-9% QoQ, -12% YoY). This was largely within expectations, making up 21-22% of our and consensus full-year forecasts.

Dividend. None declared as RHB only divvy in 2Q and 4Q.

QoQ. Core bottom-line fell 9% on the back of lower total income (-3%) and higher bad loan allowances of RM152m (vs writeback of RM81m in 4Q21). At the top, net interest margin (NIM) contracted 5bp, causing the drag, but this was mitigated slightly by the better non-interest income (NOII, +4%; stronger investment-related performance).

YoY. Weaker total income (-3%) coupled with higher effective tax rate (+7ppt) brought core earnings down by 12%. We saw NIM slipping 6bp and NOII declining 7%, given tepid fee showing. However, lower loan loss provision (-12%) offered some respite.

Other key trends. Both loans and deposits growth held steady at +7.0% YoY (4Q21: +6.7%) and +3.9% YoY (4Q21: +7.5%; high base effect in 1Q21). As a result, loan-to deposit ratio (LDR) nudged down 2ppt QoQ to 89%. For asset quality, gross impaired loan (GIL) ratio ticked up 1bp sequentially to 1.50%.

Outlook. NIM is seen to expand sequentially, following May-22’s OPR hike. However, the magnitude could be capped by downward normalization of CASA mix. That said, loans growth is expected to chug along for now, considering economic recovery. On a separate note, GIL ratio is likely to creep up but we are not overly concerned as RHB has already made heavy pre-emptive provisioning in FY20-21 to cushion this impact. Moreover, FY22 NCC assumption pencilled in by both us and consensus are still fairly elevated (above the normalized run-rate but below FY20-21’s level).

Forecast. Unchanged since 1Q22 results were in line. That said, we introduce FY24 financial estimates.

Retain BUY and GGM-TP of RM7.00, based on 0.93x FY23 P/B with assumptions of 11.0% ROE, 11.7% COE, and 3.0% LTG. This is above its 5-year mean of 0.81x but in line with the sector’s 0.92x. In our view, the valuation multiple is warranted, since its ROE generation is comparable to sector average. Overall, we still like RHB for its high CET1 ratio (indicating headroom for attractive dividend payout in the future) along with undemanding valuations.

Source: Hong Leong Investment Bank Research - 31 May 2022