1QFY22 CNP of RM600.2m (-12%) is within expectations. The dip was due to the one-off prosperity tax for CY22. Management has unveiled its 3-year TWP24 plans, which could give investors some confidence on the group’s medium-term vision. Notably, the group aims for a FY24 ROE of 11.5%. Meanwhile, current FY22 targets are on track. No dividend was declared during this quarter, also as expected. Maintain OP and GGM-derived TP of RM6.95. RHBBANK is one of our 2QCY22 Top Picks.

1QFY22 within expectations. 1QFY22 core PATAMI of RM600.2m is within expectations, consisting of 23%/22% of our/consensus full-year estimate. No dividend was declared this quarter, which is also expected as the group typically pays its dividends bi-annually.

YoY, 1QFY22 total income saw a flattish decline (-1%) to RM1.90b as a small gain in NII (+1%) from a stronger loans base (+7%, led by mortgage growth) amidst NIM correction (-12bps) was offset by an 8% drop in NOII. There was an overall weakness mainly came from softer brokerage income amidst harsher trading sentiment. The period incurred an annualised credit cost of 29bps (- 9bps) which is close to the group’s guidance, thanks to a better operating landscape. However, this came with some additional management overlays from ongoing macro uncertainties. Although PBT grew by 3%, higher effective tax from prosperity tax dragged 1QFY22 core earnings down to RM600.2m (- 12%).

QoQ, 1QFY22 total income declined slightly (-1%) as NIMs contracted amidst higher cost of funds, resulting in NII to drop by 2%. Meanwhile, NOII inched up by 4% thanks to higher insurance underwriting surpluses. Absent the same writebacks seen in 4QFY21, 1QFY22’s positive credit cost drove operating profit down by 3%, which translated to a 9% QoQ decline in core PATAMI.

Briefing highlights. Management sought to cement medium-term targets with its newly introduced 3-year TWP24 (Together We Progress) initiative where it aims to elevate group ROE to 11.5%. This will be achieved with more personalised customer engagement and retention while building integrated overseas business channels. Sustainability and diversity would also be a key focus during the next three years. Meanwhile, the group’s immediate FY22 targets should still be on track to be achieved. Management had previously penned an 8.5% ROE target inclusive of prosperity tax, which netting off could bring the group closer to 10.0%. The group’s YTD 7% loans growth exceeds its target of 4-5% and we believe the momentum will likely continue given the stickiness of the mortgage space. On the flipside, given the earlier-than- expected OPR hike, management believes a higher NIM could be achieved by year-end; hence, raising their expectations to 2.14% (from 2.11%, previously).

Post results, our FY22E/FY23E earnings were tweaked by -1%/+1% on model updates.

Maintain OUTPERFORM and TP of RM6.95. Our TP is based on an unchanged GGM-derived FY23E PBV of 0.91x (0.5SD above mean). 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, the group’s recent digital banking licence win could serve as a sentiment booster to the group as it nears the launch of its new entity and digital offerings. RHBBANK is also one of our Top Picks for 1QCY22.

Source: Kenanga Research - 31 May 2022