1QFY21 PATAMI of RM650.3m (+14%) is within expectations. The group is maintaining its guidance for FY21 as it is optimistic of tiding through the Covid-19 pandemic with its local presence and strategies. We also expect progressive stabilisation in lieu of wider vaccination efforts. Dividend guidance is still pending evaluation of the acceptance rate of its reinvestment plan. Maintain OUTPERFORM and GGM-derived PBV TP of RM6.25.

1QFY21 earnings within expectations. RHBBANK’s 1QFY21 PATAMI of RM650.3m is within expectations, making up 28%/27% of our/consensus full- year expectations. No dividends were declared, also as expected as the group typically pays its dividends semi-annually.

YoY, 1QFY21 total income came in at RM1.92b (+11%). This was driven by strong NII from a loans growth of 6% and NIM improvement to 2.22% (+6 bps) in addition to NOII riding on higher fee-based income, namely brokerage. Operating expenses creeped up by 8% overall, but the higher top-line reflected a CIR improvement to 46.0% (-1.3ppt). Compared to 1QFY20, impairments rose by 19% to RM180m in a full Covid-19-hit quarter as management provided overlays of RM94m in case of prolonged movement controls. This translated to a higher credit cost of 38 bps (+4 bps). In line with income growth, 1QFY21 PATAMI rose to RM650.3m (+14%). CASA-to-deposit ratio was higher at 30.6% (+3.2ppt) while GIL was better at 1.7% (-0.3ppt).

QoQ, 1QFY21 total income fell by 7% as NIM softened on asset repricing amidst a stable loan base while NOII came off from lower treasury gains. That said; provisions for the quarter was significantly lower by 67%, thanks to pre- emptive allowances booked during 4QFY20 to account for more prudent measures against economic uncertainties. This led to 1QFY21 PATAMI recording a 48% increase.

Key briefings highlights. Judging on the current landscape, management is hopeful to weather through further economic challenges from the Covid-19 pandemic. Soft points are seen in the retail space (mortgage, hire purchase) with SMEs also expected to see an uptick fuelled by relief measures provided. Meanwhile, its Singapore operation is showing promise as the REITS and property segment are demonstrating healthy results. FY21 guidance is maintained for now, but management is optimistic that it could perform better in terms of credit cost, barring further tightening of movement controls for prolonged period of time. As for dividend outlook, management is monitoring the overall acceptance of its dividend reinvestment plan which should be completed by Jun 2021. Recall that its FY20 dividend fell short as management had previously withheld payments in consideration of this exercise.

Post-results, we tweak our assumptions slightly from model updates.

Maintain OUTPERFORM and TP of RM6.25. Our TP is based on a FY22E GGM- derived PBV of 0.83x (closely within 5-year mean). We still favour RHBBANK as a prudent selection with its leading CET-1 ratio of c.16% which enables greater allowance to implement capital management strategies. Its dividend proposition could also be attractive to yield-seeking investors, as we anticipate payouts to return to a 40-50% ratio post dividend reinvestment.

Risks to our call include: (i) higher-than-expected margin squeeze, (ii) lower- than-expected loans growth, (iii) worse-than-expected deterioration in asset quality, (iv) further slowdown in capital market activities, (v) adverse currency fluctuations, and (v) changes to OPR.

Source: Kenanga Research - 28 May 2021