RHBBANK is confident of maintaining its FY21 targets. Economic recovery opportunities are anticipated on better subsequent quarters but further clarity on its Dividend Reinvestment Plan (DRP) is pending approvals. We believe the group’s merit for strong capital reserves remains intact in the current landscape. BUY with a TP of RM6.25 based on a PBV of 0.83x. Overall, we favour RHBBANK in light of its industry leading CET-1 ratio of 16.2% which enables greater allowance to implement capital management strategies.

RHBBANK has fairly weathered the MCO 2.0 in Jan-Feb 2021 as the movement restrictions were not as restrictive as compared to FY20. That said, loan applications did see some set-backs but is not detrimental to the group’s loans growth target of 4%-5% (vs. our FY21E target of 6.2%) on hopes of better economic activity in the coming quarters, propelled by expectations of higher mortgages, auto financing, SMEs and Singapore’s contributions (which is striving in the non-retail space).

FY21 credit cost guidance of 30-40 bps (vs, our FY21 estimate of 43 bps) remains unchanged. Recall that in FY20, credit cost registered at 58 bps which was above the target of 40-50 bps, partly due to pre-emptive provisioning to buffer against further uncertainties in FY21.

With OPR expected to remain stable and most of its loans being repriced, management expects its FY21 NIM of 2.06% to be held by its high CASA mix of 30% and pricing opportunities in the fixed deposit segment. On the other hand, NOII is expected to stay buoyant, albeit likely to be moderate compared to 2HFY20’s performance. Management expressed that there is still encouraging interest in wealth management products while brokerages are still strong, but the lion’s share of fees from commercial banking (22% of total NOII) will be pegged to the success of its loans.

However, dividend expectations should be moderated for now as the group await its DRP to be approved in its AGM in May. Previously, the group withheld from paying generous dividends are it evaluated its capital position in 4QFY20. That said, management is hopeful to reward its shareholders with an aspirational 50% payout ratio (similar to FY19) eventually. Currently, we have only factored in an expected payout of c.40% which still yielded dividend return of close to 5%, which is the second best amongst peers.

Source: Rakuten Research - 16 Apr 2021