Review

• RHB Bank reported stronger sequential results, with 1QFY24 net profit surging 24.6% to RM730mn from RM586mn in the previous quarter due to lower overhead expenses and allowances. Yearly, the 1QFY24 net profit declined by 4.1% YoY, accounting for 25% of our forecast and 26% of consensus. ROE stood at 9.2%, slightly lower than the 9.5% registered in FY23.

• 1QFY24 net fund-based income increased by 3.1% QoQ and 0.9% YoY. Sequentially, the healthier rise in the net fund-based income was due partly due to a 5 bps QoQ increase of the net interest margin (NIM) to 1.83% as funding costs pressure ease and ongoing liability management initiative. YoY, the net fund-based income rose due to higher loan growth of 5.4%, although the 7 bps YoY decline in NIM muted the impact.

• Loans and advances accelerated at a more robust pace of 5.4% YoY (4QFY23: +4.8% YoY). The increase was led by Group Community Banking (+6.0% YoY) due to mortgages (+8.6% YoY), auto finance (+9.4% YoY), unsecured business loans (+8.4% YoY), and SME (+4.1% YoY). Meanwhile, the Group Wholesale Banking fell again by 3.1% YoY, underpinned by a 5.2% decline in corporate loans. Loans in the commercial segment rose by 9.0% YoY. By geography, overseas loans advanced 17.1% YoY, led by Singapore (+21.9% YoY) and Cambodia (+2.9% YoY). Domestically, total loans and advances widened by 3.6% YoY.

• Total customer deposits broadened by 7.3% YoY on the back of higher FDs (+6.6% YoY). CASA deposits rebounded to grow by 2.9% QoQ and 10.5% YoY, while MMTD rose at a softer pace of 2.9% YoY (-7.2% QoQ). The CASA ratio stood at a healthier 29.0% vs 27.9% in 4QFY23 and 28.1% a year ago.

• Overall, the 1QFY24 non-fund-based income broadened by 31.6% YoY, attributed to higher fee income, along with higher net trading and investment income. Fee income expanded at a more robust pace of 16.9% YoY but contracted by 2.9% QoQ due to lower IB-related and Commercial Banking fees. On a YoY basis, however, the recovery in fee income was driven by a turnaround in Asset Management (+2.5% YoY) and Brokerage Income (+18.8% YoY), while IB Related and Commercial Banking continued to improve by 19.4% and 19.7% YoY, respectively. Elsewhere, treasury income, which comprises Forex Gains/Derivatives and Gain & MTM on Securities, ballooned to RM400mn (1QFY23: RM277.9mn).

• 1QFY24 operating expenses expanded by 12.0 YoY (-2.2% QoQ). Yearly, the increase was led by Marketing expenses (+27.6% YoY), Personnel Costs (+14.2% YoY), and Establishment Costs (+10.5% YoY), of which most of it was for IT enhancements (+12.9% YoY). Admin & General Expenses declined by 6.0% YoY. Despite that, RHB’s 1QFY24 cost-toincome (CTI) ratio improved to 45.7% vs 47.5% in FY23 due to a 2.2% QoQ contraction in operating expenses.

• YoY, 1QFY24 allowances for losses on loans rose to RM213mn from RM55mn in 1QFY23 due to persistent pressure on asset quality. QoQ, total allowances improved by 10.1% from RM237mn. With that, the credit charge ratio declined to 25 bps in 1QFY24 from 42 bps in 4QFY23 but is higher compared to 10 bps a year ago.

• Meanwhile, RHB’s gross impaired loans (GIL) ratio deteriorated sequentially to 1.83% vs 1.74% in 4QFY23 and 1.59% a year ago. The steep YoY increase in the GIL ratio was mostly driven by overseas operations, where the GIL ratios for Singapore, Thailand and Cambodia jumped to 1.0%, 28.8% and 11.2% in March 2024 vs 0.85%, 6.1% and 7.3% in March 2023. By segment, we note YoY upticks for some major segments within Group Community Banking (such as mortgage and SME), as well as Group Wholesale Banking (commercial).

• RHB Bank Group’s capital remains healthy, with a CET1 and Total Capital Ratio ending March 2024 at 16.5% and 19.2%, respectively. The liquidity coverage ratio stood at 144.4% (December 2023: 177.4%).

Impact

• No change to our earnings estimates.

Outlook

• RHB began the year with encouraging revenue growth in 1QFY24 and several key ratios that closely tracked management’s annual targets. Notable achievements include loan growth surpassing the targeted 4.5% (1QFY24: 5.4%), robust CASA accumulation through initiatives in the Education and Tourism sectors, leading to a better NIM of 1.8-1.9% (1QFY24: 1.83%), and effective cost management with a CTI ratio below 47.5% (1QFY24: 45.7%). However, the ROE was 9.2%, slightly below the management’s 10% target.

• Anticipating potential headwinds, management will focus on managing asset quality by containing GIL and emphasizing recoveries for the rest of the FY. For now, management projects to achieve a net credit cost of around 20-25 bps and aims to keep the GIL ratio below 1.75%. Other priorities include maintaining a consistent dividend payout and continuously optimizing capital utilization for better returns.

Valuation

• Rolling valuation forward to FY25 and updating beta assumption, we adjusted RHB’s TP to RM5.70 from RM5.90. Our valuation is based on an implied PBV of c. 0.74x based on the Gordon Growth Model. We maintain our HOLD recommendation on RHB.

Source: TA Research - 30 May 2024