RHBBANK’s 1HFY23 net profit (+30% YoY) and interim dividend were within expectations. The group expects to see subsiding challenges in its interest income streams with hopes of improved loans acquisition and more efficient funding cost. While its non interest segments are expected to remain resilient, the group’s writeback of overlays in FY23 could help support bottomline readings as well as dividends. Maintain OUTPERFORM and GGM derived PBV TP of RM6.80.

1HFY23 within expectations. RHBBANK’s 1HFY23 net profit of RM1.57b accounted for 50% of our full-year forecast and 52% of consensus full-year estimate. An interim dividend of 15.0 sen (41% payout) was declared, which we deem to be in line with our full-year anticipated payment of 43.0 sen (c.55% payout) on a lumpier 2HFY23 payment.

YoY, 1HFY23 total income was flattish. This was owing to a 4% decline in net interest income following heavy NIM compressions at 1.99% (- 20bps) from higher funding cost met with a loans growth of 5%. Meanwhile, non-interest income surged by 24% thanks to significantly stronger forex performance. Operating expenses grew by 7% as expenses rose across the board, but due to the flattish top line, this led cost-income ratio to rise to 47.5% (+2.6ppts). With regards to impairments, the group marked a net writeback of RM102m in 2QFY23 from the phasing out of pandemic-related overlays. This led 1HFY23’s credit cost to come in at -4bps (as opposed to 1HFY22’s 16 bps). Alongside normalised effective taxes, 1HFY23 net profit reported in at RM1.57b (+30%).

Briefing highlights. The group looks to keep its targets for FY23, optimistic that its market positioning would enable it to deliver favourable results despite possible top line restraints.

1. Although YTD loans growth only came in at 0.9% with softening prospects ahead, the group believes it could still meet its initial 4%- 5% loans growth guidance. Weakness has been primarily seen in the group’s wholesale-corporate segment of which a supportive mortgage portfolio could help to cushion.

2. The group believes funding cost pressures will subside after bearing most of the strains in the 1HFY23 period, with an increasing proportion of auto financing moving towards variable rate schedules.

3. With the improving sentiment in investment markets, the group opines that its treasury performances will continue to demonstrate favourable returns as opposed to losses during the prior periods. This would help to offset any weakness experienced with its fee based income streams.

4. Utilising its overlays, the group had previously kept a book of RM411m Covid-related overlays but had since re-designated c.RM127m towards non-Covid related purposes while having written back the balance. While these writebacks may narrow down the group’s overall credit cost, it opines that its 25bps-30bps guidance would still be relevant in accounting for BAU provisions.

Forecasts. Post results, we tweak our FY23F/FY24F by -1%/+1% following 2QFY23’s inputs.

Maintain OUTPERFORM and TP of RM6.80. Our TP is based on an unchanged GGM-derived FY24F PBV of 0.88x (COE: 11.0%, TG: 3.0%, ROE: 10.0%). It is positioned as a leading dividend candidate with yields averaging above 7% at current price levels. This could be further lifted should the group decide to release its hefty CET-1 portfolio to reward shareholders. The stock will still likely be monitored closely due to its tie-in with Axiata-Boost in relation to the upcoming launch of a new digital bank in the near future. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us.

Risks to our call include: (i) higher-than-expected margin squeeze, (ii) lower-than-expected loans growth, (iii) worse-thanexpected deterioration in asset quality, (iv) further slowdown in capital market activities, (v) adverse currency fluctuations, and (vi) changes to OPR.

Source: Kenanga Research - 30 Aug 2023