We hosted a meeting with En. Nik Rizal Kamil, CFO of RHBBANK which gave us a clearer direction its prospects. As with other banks, the group should not be exposed to similar pressures of the earlier moratorium. Its digital banking license pursuit with Boost would enable penetration into the underserved communities, pending BNM’s decision in 1QFY22. Maintain OP and TP of RM6.15.

Less burdensome mod loss; aided by unwinding. Given that we are still in early days in the new opt-in moratorium, management is unable to guide on its anticipated take-up rate but is confident that it will be lower than last year’s automatic blanket moratorium. FY20’s net mod loss of RM418m should also be a non-repeat, as an unwinding of RM50m-RM70m/year could materialise assuming take-up rates are not overly aggressive. That said, the B40 segment only makes up 21% of the group’s total retail loan books, which could not be too detrimental assuming full applications from here are made.

Meanwhile, the group’s TRA still stands at c.10% of total outstanding loans, as progressive graduations were offset by new applications, no thanks to the struggles from extended movement controls.

Loan growth still hopeful. At present, the group’s loan growth guidance of 4-5% still appears to be intact. This is fuelled by demand for housing loans and auto financing, although likely to be set back by softer SME numbers as current economic conditions are not business friendly. Further applications cum economic reopening should help boost year-end performances when our national vaccination rate grows. Regionally, Singapore is poised to perform more favourably than Malaysia on more successful containment of Covid-19 while other regions (Cambodia, Thailand) are seen to be moderate.

Credit cost likely to be at the higher end of guidance. Management previously guided a credit cost range of 30-40 bps. With recent developments and recognition needs triggered by the moratorium, it is likely that we could see further overlays to be imputed (currently at >RM600m) in the coming quarters and lead the bank to the tail-end of the range. On the flipside, this could indicate high utilisation levels in the coming years should lockdown measures ease coupled with the reopening of the economy.

Softer NIMs to come. In anticipation of the impacts of repricing its products, management has kept with its NIM guidance of 2.06% (ex-mod loss) for now. However, if economic activity remains soft and CASA levels rise, this could translate to better rates for the group.

Handshake with Boost to aid underserved. Recall that in Jun 2021, RHBBANK and Boost (Axiata Group) jointly applied for a digital banking license. Subject to BNM’s approval by 1QFY22, the group’s participation in this space is to provide access to the underserved communities. The hope is to financially enable these markets with non-traditional products (i.e. micro loans) which could aid economic development and transition them to more sophisticated banking products. Further, RHBBANK could stand to leverage on a wider potential customer base in Axiata’s ecosystem, being Celcom customers (and Digi when the merger is completed) for cross selling opportunities.

Post meeting, we leave our earnings assumptions unchanged for now.

Maintain OUTPERFORM and TP of RM6.15. Our TP is based on a FY22E GGM- derived PBV of 0.82x (closely within 5-year mean). At the time being, we believe RHBBANK still holds a resilient spot amidst macro uncertainties. It also serves as a prudent stock selection with its leading CET-1 ratio of c.16% which enables greater allowance to implement capital management strategies. While management has an aspired dividend payout ratio of 50%, we keep our expectations conservative at 35% which nevertheless still able to garner yields close to 5%. As such, investors could possibly benefit from dividend surprises.

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 - 16 Jul 2021