We hosted a meeting with En. Nik Rizal Kamil, CFO of RHBBANK and came out feeling reassured of the group’s near-term prospects. The group’s high variable rate loan mix (87%) remains our main thesis’ base of RHHBANK being able to deftly navigate shifts in OPR in the coming quarters. Singapore also looks to record strong regional improvements while repayment assistance profiles continue to improve in line with economic recovery. Maintain OP and TP of RM6.95. RHBBANK is one of our Top Picks for 2QCY22.

Loans growth projection intact. In the group’s FY22 guidance, management hopes to record 4-5% growth in its loans books (FY21: 6.7%) fuelled by economic recovery. Mortgage and hire purchases are expected to lead books growth, with SME performances still waning in certain sectors (i.e. hospitality, tourism) albeit likely to gain traction from economic recovery spill-over. Singapore (25% loans growth in FY21) is expected to be a strong performer from its earlier-than-expected reopening but perhaps at a more moderate pace going forward.

For the moment, the group’s portfolio is not likely to be directly impacted by the ongoing Russia-Ukraine conflict as their accounts are mostly dealing with the Asian Pacific region. That said, the group will be selective with taking on questionable quality assets and is progressively deleveraging on risky sectors (i.e. oil & gas).

TRAs are graduating nicely. According to management’s Mar 2022 readings, repayment assistance accounts now only make up 6% (c.RM10.7b vs. Jan 2022: 12% @ RM21.3b) of outstanding loans. This is attributed to the expiry of the PEMULIH program where T20s are also thought to have participated, with the more targeted URUS program for B50s seeing an extremely low take-up. For the moment, repayment trends for these accounts seem to be normalising, at c.95% of those applied. That said, management is still wary of potential delinquencies should the economy be shocked by another Covid-19 wave.

Overlays kept close to the chest. As of FY21, the group had accumulated RM819m of management overlays as provisional buffers. Despite seeing favourable recoveries, management is abstaining from prematurely writing back its reserves and may opt to refresh its allocation as uncertainties still persist. This is similar to Bank Negara’s tone. Credit cost guidance for FY22 stands at 30bps (FY21: 30bps) which is expected to account for slightly more overlays should management sees fit. On the flipside, this could also be read that BAU impairments should ease.

CASA competition could weigh down NIMs until OPR hike. To recap, the group anticipates FY22 NIMs to come in at 2.11% (-3bps YoY) attributed by heightened competition for CASA before an OPR hike comes to effect. Against the compression, management gauges for these levels to be comfortable if the group could sustain its LDR at 90% (FY21: 89%), suggesting that deposits growth is targeted similarly to loans growth of 4-5%. On an annualised basis, a 25 bps increase in OPR could translate to a 3bps increase to group NIMs, hence normalising the NIMs compression.

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

Maintain OUTPERFORM and TP of RM6.95. Our TP is based on a FY23E GGM- derived PBV of 0.91x (0.5SD above 5-year mean). The stock is usually seen favourably for its high CET-1 ratio (c.16%) and prospects in the digital banking space (refer to overleaf). That said, we divert focus towards the group’s high variable loan mix (87%) relative to better-than-average GIL ratio of 1.7% for the year. This is indicative of the group’s strong financing repricing ability from the eventual rate hike which we expect to come into effect in 2HCY22. Hence, 2QCY22 could be the opportune time to position in anticipation of such an event. While the FY22 bumper dividend payout (c.60%) is not likely to repeat itself, the group’s historical average of 50% (above its 30% minimum dividend policy) still offers a modest 5-6% yield to investors. RHBBANK is one of our Top Picks for 2QCY22.

Source: Kenanga Research - 14 Apr 2022