RHBBANK’s 1HFY24 net profit (-8%) and interim dividend were within expectations. Despite higher credit cost in 1HFY24, asset quality stresses from its overseas portfolios may subside as the group sufficiently provided for them. Meanwhile, a better loans trajectory could support group earnings with NIMs also expected to stay in a tight range bound. Maintain OUTPERFORM and GGM- derived PBV TP of RM7.25. RHBBANK is one of our 3QCY24 Top Picks for its leading dividend defensiveness.

1HFY24 within expectations. RHBBANK’s 1HFY24 net profit of RM1.45b came in at 48% of our full-year forecast and 51% of consensus full-year estimate despite higher impairments. An interim dividend of 15.0 sen declared was also within our expectation, with a lumpier 2HYF24 payment expected, to make up our 42.5 sen target (c.60% payout).

YoY, net profit declined by 8% attributed to higher group credit cost of 32 bps as compared to 1HFY23’s net writeback position. This was led by provisions loaded onto RHB Thailand (1QFY24: RM130m) whereby certain hospitality-related accounts were still struggling to recoup post- pandemic. Adjusting for this, a revised credit cost of 21 bps would have otherwise been within the group’s 20-25 bps BAU target. Concurrently, this drove the group’s 1HFY24 GIL of 1.76% to be shy of its 1.75% target.

On the other hand, RHBBANK loans growth were commendable (+6%, above initial 4.5% growth guidance) with NIMs (-2 bps; +1 bps QoQ) seeming to land on stable levels, prompting a more optimistic loans target of 6.5%-7.0% (from 4.5%). Its stockbroking business (+36%) continued to leverage on greater market activity and supports NOII.

QoQ, 2QFY24 net profits were flattish (-1%) due to a normalised effective tax payment against sequential improvements to credit cost at 26 bps (vs 1QFY24: 38 bps, or 15 bps adjusting for the abovementioned RHB Thailand accounts).

Highlights. While the group’s domestic GIL of 1.56% seems well against the industry’s 1.60% reading for Jun’24, they will continue to be bogged by unsavoury exposures in Thailand and Cambodia in spite of its collective RM5b loans only making up 2% of total books. Granted, we believe that underlying risks could be well-contained as there were few incremental needs to address these regions’ portfolio.

RHBBANK continues to make use of USD forex swaps as part of its liability management initiatives to manage NIMs. This may see narrowing utility in anticipation of US Fed cutting rates and undermining market demand for USD. That said, we believe the group rising CASA composition (28.1%; 2QFY23: 27.6%) could help to navigate its NIMs trajectory in the near-term.

Forecasts. Relatively unchanged following model updates to incorporate 2QFY24.

Maintain OUTPERFORM and TP of RM7.25 based on an unchanged GGM-derived FY25F PBV of 0.93x (COE: 10.5%, TG: 3.0%, ROE: 10.0%) against FY25F BVPS of RM7.75. 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 as a proxy of Boost Bank’s deliveries. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us. RHBBANK is one of our 3QCY24 Top Picks for the defensiveness of its dividends.

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) slowdown in capital market activities, (v) unfavourable currency fluctuations, and (vi) changes to OPR.

Source: Kenanga Research - 28 Aug 2024