9MFY21 normalised PATAMI of RM2.15b (+16%) is above estimates thanks to stronger overall top-line and cost performance. Management appears comfortable on closing FY21 as guided but with a slight bump in credit cost exposure. This traction could extend over to FY22 if not for worsening of the Covid situation. Otherwise, we opine its heavy overlays and high CET-1 ration should cushion some damage. Maintain OUTPERFORM but raise our GGM- derived PBV TP to RM6.50 (from RM6.10).

9MFY21 results better than expected. 9MFY21 normalised PATAMI of RM2.15b is above expectations, making up 92%/86% of our/consensus expectations. The positive deviation was due to better-than-expected loans growth, NOII and CIR. 4QFY21 could see some concentrated provisions, which we had already factored in. No dividend was declared this quarter as the group typically pays its dividends bi-annually.

YoY, total income grew by 15% to RM5.87b thanks to stronger NII (+26%) which was led by a 7% loans growth led by mortgages, SMEs and demand in Singapore while NIMs expanded to 2.18% (+30bps) in a low cost of fund environment. That said, CASA moderated to 30.1% (9MFY20: 31.3%). Meanwhile, NOII fell by 9% as improvements in fee-based income was offset by poorer comparative treasury performance. CIR narrowed to 44.5% (- 4.3ppt) amidst a 5% increase in cost (mainly personnel) due to the higher top- line. In term of provisions, 9MFY21 saw a larger share (RM651.0m, +20%) as management booked overlays in addition to PEMULIH considerations. This translated to an annualised credit cost of 46bps (+5bps). The majority of FY20 provisions were in 4QFY20 from hefty frontloading. All in, reported 9MFY21 PATAMI came in at RM1.99b (+25%). Removing the impacts of modification losses, normalised PATAMI would register at RM2.15b (+16%).

QoQ, 3QFY21 total income decreased by 3% when factoring in RM172.1m modification losses incurred from the PEMULIH scheme. NOII was 10% stronger thanks to positive movements in trading income. Similar to the above, PEMULIH resulted in higher allowances booked during the period (+10%) at a credit cost of 52bps (+4bps). Stripping out the impact of modification loss, normalised 3QFY21 PATAMI came in at RM766.4m (+9%).

Key briefings’ highlights. Management appears confident that its FY21 targets will be duly achieved; having gained noticeable ground in its loans mix while still sustaining healthy CASA levels to keep cost of funds low. However, the group is cautious that URUS may call for bumps in its impairment allowances and hence raise their credit cost guidance to 40-45bps (from 40bps). For the time being, the group has accumulated management overlays of RM564m YTD which should serve as a solid buffer against any uncertainties that could arise, more recently from new Covid-19 variants.

Post results, we raise our FY21E/FY22E earnings by 17%/16% from stronger loans performance (5%/2% to 8%/3%) and a leaner CIR (~44% from ~46%).

Maintain OUTPERFORM with a higher TP of RM6.50 (from RM6.10). In addition to the earnings adjustments above, we also raise our ROE assumptions to our GGM to arrive at an applied PBV of 0.88x (from 0.84x, 0.5SD above mean). RHBBANK’s strong delivery is further lifted by its ability to sustain an industry leading CET-1 ratio of 16.8%. Amidst ongoing uncertainties, it can allow for better capital management or surprise shareholders with more generous dividend payments. We anticipate a payout of c.50% which translates to dividend yield of 5-6%.

Source: Kenanga Research - 1 Dec 2021