We have revised down RHB’s 2020E/21/E/22E net earnings forecasts lower by another 5.7%/3.5%/3.5%, which was reflected in our Strategy’s report (31 Mar). We continue to stay bearish on the banking sector’s outlook as we factor in the recessionary impact in 2020 (Affin’s GDP growth target -3.5%) while the recovery in 2021 will be gradual. From a Webinar with RHB yesterday, our key takeaway is that management is prepared to face the challenges, i.e. RHB has sufficient liquidity to sustain (for the next 6 months), GIL ratio will likely go >2.0% in 2020, ROE could go <10%, capital ratios will be impacted, exposure to vulnerable sectors at ~5% of domestic loans. Reiterate SELL, with a revised PT at RM3.80 (at 0.57x CY20E P/BV).

Key Takeaways From Webinar With RHB’s Management

From the Webinar yesterday, these were the key takeaways from RHB’s management: i) exposure to vulnerable sectors (aviation and tourism sectors) makes up about 2% of the domestic retail loanbook and 9% of non-retail loanbook. This works out to be circa 5% of domestic loans; ii) RHB has sufficient liquidity (LCR as at Dec19 stood at 152.7%) to manage its cashflows given the automatic moratorium period of 6 months granted to individuals (except for credit card debts) and SMEs; iii) asset quality (GIL ratio 1.97% at Dec19) may likely deteriorate further above 2% after the 6 months moratorium is lifted; iv) 2020 ROE could potentially dip below 10%; v) RHB may likely miss its 2020 loan growth target of 4%.

Our Concerns for the Banking Sector Due to a Potential Recession

Our concerns for the banking sector is due to the risk of higher provisions arising from asset quality deterioration as indiviuals’ incomes are affected by unemployment risk, while the business sectors at risks also face cashflows constraints (in sustaining operational costs). We are of the view that bankruptcy cases may be on the rise, but may only show up in 2021.

Maintain SELL on RHB; New PT at RM3.80 (at 0.57x 2020E P/BV)

We Maintain Our SELL Rating on RHB, Based Our New Price Target of RM3.80 (at 0.57x P/BV target on 2020E BVPS) from RM4.40 (based on 0.66x P/BV target previously). Our 2020E-22E earnings forecasts assumptions include: i) NIM at 1.94%-1.98%; ii) 2020E loan growth decline 3%; iii) net redit cost at 23-25bps.

Source: Affin Hwang Research - 31 Mar 2020