1HFY21’s normalised PATAMI of RM1.36b (+6%) is within expectations but a generous interim dividend of 15.0 sen was a positive surprise, post-DRP approvals. Management is also anticipating potential downside from being in a prolonged state of economic lull and is cautioning the need for further allowances in 2HFY21, which we believe we have sufficiently accounted for. Maintain OUTPERFORM and GGM-derived PBV TP of RM6.15 with higher dividend expectations.

1HFY21 results as expected. 1HFY21 normalised PATAMI of RM1.36b came in broadly within expectations, making up 58%/54% of our/consensus expectations. The group could see slightly higher provisioning in the 2HFY21 period, coupled with some modification losses. An interim dividend of 15.0 sen was declared; we deem this to be better than our 23.0 sen assumption (40% payout) for the year as typically the bank’s final dividend is greater than its interim.

YoY, 1HFY21 total income was reported at RM3.92b (+19%) on the back on stronger NII (+34%), riding on more mortgages, hire purchases and SME loans. Its Singapore operation also helped with NIMs coming in at 2.22% (+44 bps) after repricing its deposits. However, NOII declined by 12% mainly from softer treasury gains. With the higher overall income, CIR improved to 44.5% (- 5.9ppt) despite higher personnel cost. In lieu of prevailing uncertainties, management took a cautious step to front load more allowances and overlays, resulting in higher loan provisions of 11%, inching credit cost to 42 bps (+2 bps) amidst a larger loan base. All in, the group saw a PATAMI of RM1.35b (+39%) in 1HFY21. Removing the impacts of mod losses from 1HFY20, normalised PATAMI would have only improved by 6%.

QoQ, 2QFY21 total income increased by 4% to RM2.00b mainly due to favourable swings in treasury income. Similar to the abovementioned reason, credit cost rose to 46 bps (+8 bps) as a pre-emptive measure. Regardless, the higher top-line led to PATAMI coming in 7% higher.

Key briefings’ highlights. RHBBANK is also seeing a rise in its TRA mix, stirred by PEMULIH initiatives (28% of outstanding loans from 15% in Mar 2021). However, management is undeterred as this mostly comprises low risk T20 accounts that might be in it for short-term liquidity buffers. That said, management remains concerned about the ongoing pressures from a restricted economy and suggests that full-year credit cost is more likely to lean towards the higher end of its 30-40 bps expectation as they book in the necessary provisions. However, they do not discount to possibly breach this level if required. For the time being, management is maintaining its other guidances. Additionally, softer NOII results are to be expected for the rest of the year, especially given 2HFY20’s heightened sentiment.

Post results, we tweak our assumptions slightly from model updates. Our credit cost assumption for FY21 remained conservative at 40 bps from earlier guidance. That said, we raise our dividend payout assumptions to 30.0/35.0 sen from 23.0/26.0 sen for FY21E/FY22E.

Maintain OUTPERFORM and TP of RM6.15. Our TP is based on a FY22E GGM- derived PBV of 0.84x (closely within 5-year mean). We still favour RHBBANK as a prudent selection with its leading CET-1 ratio of c.17% which enables greater allowance to implement capital management strategies. Thanks to its DRP, the group can be more flexible and generous with how it rewards shareholders and we are counting on a 45-50% payout ratio to sustain going forward, leaning towards dividend yields of 5-6%.

Source: Kenanga Research - 30 Aug 2021