FY21 normalised PATAMI of RM2.81b (+22%) is within our expectation but total dividends of 40.0 sen exceeded estimate, partly to make up for prior year. Management is expecting some challenges in FY22 with rising competition for loans and deposits. That said, we are confident the prospective win of a digital banking license could be a boon to its share sentiment. Maintain OUTPERFORM but with a higher TP of RM6.70 (from RM6.50) as we roll over our valuation base year. RHBBANK is one of our Top Picks for 1QCY22.

FY21 is within our expectation but better than consensus, as the normalised earnings of RM2.81b made up 103% and 107% of respective estimates. We reckon the miss on consensus’ end was due to overly bullish provision projection for the 4QFY21. Meanwhile, the group announced a final dividend of 25.0 sen, resulting in a full-year payment of 40.0 sen. This is above our expectation given the unprecedented payout of c.60% against our expected c.45%. Management guide of 50% would be a more sustainable ratio to eye going forward.

YoY, total income increased to RM7.79b (+8%) with the help of a solid NII (+18%) performance. While NIMs only expanded by 8bps to 2.14%, loans growth grew by 7% on the back of more mortgage, commercial and Singapore- based loans. Meanwhile, NOII fell 14% as treasury income suffered. Though operating cost increased (+4%) on more activities, CIR narrowed (45.2%, - 1.9ppt) from higher top-line. Thanks to pre-emptive measures and buffers implemented in FY20, FY21 saw less overall provisioning needs as credit cost for the year closed at 30bps (-29bps). Absent the impact of modification losses, normalised PATAMI came in at RM2.81b (+22%).

QoQ, 4QFY21 total income saw a flattish decline (-1%), dragged by NOII plunging 29% while being cushioned by NII’s (+10%) better loan and margin environment. The period also saw net writebacks in its loan impairments but had to reflect provisions made on its long-term investment assets. However, no thanks to higher taxes and mod loss exposure, 4QFY21 normalised PATAMI came in 14% weaker at RM658.2m.

Briefing’s highlights. Guiding on FY22, management played a milder note with caution that traction could be slowing for the group. After a commendable 7% growth in loans this year, management projects a slowing momentum on this front with 4-5% guidance with leads coming from the same mortgage financing. NIMs are also expected to erode as competition for funds are becoming more prevalent, anticipating a slight normalisation to 2.11% (-3bps) but this may be offset by an OPR hike which could translate to a 3bps annualised impact. Still, management is confident that its cost controls will remain intact. Without the implication of prosperity tax, a 10% ROE was eyed by management but with it, an 8.5% mark is more likely.

Post results, we tweak our FY22E earnings by -2.1% from model updates incorporating the full financial FY21. We also trim out loans growth assumptions slightly to match management’s slightly cautious tone. The 6% decline in earnings is attributed to the one-off prosperity tax in FY22. Meanwhile, we also introduce our FY23E numbers.

Maintain OUTPERFORM with a higher TP of RM6.70 (from RM6.50). While we leave our applied GGM-derived 0.88x PBV unchanged (0.5SD above mean), we roll over our valuation base year to FY23E. The stock’s high capital ratios (CET-1 17%) could allow to group to deliver more dividend surprises in spite of management’s existing guidance. Additionally, with Bank Negara looking to issue digital banking licenses in March 2022, our bet remains that RHB-Boost is a strong candidate and winning the license could be a solid sentiment uplift. RHBBANK is also one of our Top Picks for 1QCY22.

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 (vi) changes to OPR.

Source: Kenanga Research - 1 Mar 2022