TA Sector Research

RHB Bank Berhad - 1HFY24 Results Within Expectations

sectoranalyst
Publish date: Wed, 28 Aug 2024, 01:19 PM

Review

  • RHB Bank reported weaker 1HFY24 results, with the net profit declining by 7.5% YoY to RM1,452mn from RM1,570mn last year due to higher overhead expenses and allowances. Sequentially, the 2QFY24 net profit declined by 1.1% to RM722mn. Despite that, RHB Bank’s YTD net profit accounted for 50% of our full-year forecast. ROE stood at 9.6%, trailing management’s target of >10% for the year but slightly ahead of the 9.5% registered in FY23.
  • An interim dividend of 15 sen per share, representing a 45% payout, has been declared.
  • 1HFY24 net fund-based income increased by 7.2% YoY (+4.1% QoQ) attributed to some liability management initiative, resulting in a 7 bps YoY net interest margin (NIM) increase to 1.99%. Sequentially, the NIM broadened by 5% QoQ. The net fund-based income also rose due to higher loan growth of 6.4% (1QFY24: +5.4%).
  • The increase in loans was led by Group Community Banking (+6.4% YoY), where the Retail segment expanded by 7.2% due to mortgages (+9.0% YoY), auto finance (+10.7% YoY), unsecured business loans (+7.0% YoY). The SME segment broadened by 3.1% YoY. Meanwhile, the Group Wholesale Banking climbed by a marginal 0.5% YoY, as the 2.8% decline in Corporate loans was offset by higher loans in the Commercial segment (+18.4% YoY). By geography, overseas loans advanced 15.6% YoY, led by Singapore (+21.9% YoY). Domestically, total loans and advances widened by 4.9% YoY.
  • Total customer deposits broadened by 4.8% YoY on the back of higher CASA deposits. CASA deposits rebounded to grow by 7.0% YoY to RM67.6mn, while MMTD also rose at a faster pace of 59.8% YoY (+13.0% QoQ) to RM27.8mn. FDs declined QoQ and YoY to RM144.9mn as the deposit portfolio was rebalanced to further optimise COF. The CASA ratio stood at a healthier 28.1% vs 27.6% in 2QFY23.
  • Overall, the 1HFY24 non-fund-based income broadened by 25.5% YoY (- 4.7% QoQ), attributed to higher fee income, along with higher net trading and investment income, and net forex gain. There was also an uplift from a one-off gain on the disposal of RHB Securities Vietnam for RM33.6mn. Fee income expanded at a more robust pace of 18.0% YoY, driven by stronger Brokerage Income (+36.1% YoY), followed by Commercial Banking (+18.4% YoY), Asset Management (+4.0% YoY) and IB Related (+2.5% YoY). Elsewhere, treasury income, which comprises Forex Gains/Derivatives and Gain & MTM on Securities, ballooned to RM736.7mn (1HFY23: RM551.0mn).
  • 1HFY24 operating expenses expanded by 8.1 YoY (+2.9% QoQ). Yearly, the increase was led by Marketing expenses (+33.8% YoY), Personnel Costs (+8.5% YoY), and Establishment Costs (+9.8% YoY), of which most of it was for IT enhancements (+12.9% YoY). Admin & General Expenses declined by 12.1% YoY. RHB’s 1HFY24 cost-to-income (CTI) ratio improved to 46.3% vs 47.5% in FY23 due to positive JAWs.
  • YoY, 1HFY24 allowances for loan losses rose to RM85.5mn vs. a writeback of RM360mn in 1HFY23. To recap, RHB wrote back RM245mn in management overlay last year. With that, the credit charge ratio climbed to 24 bps from -4 bps in 1HQFY23 and 16 bps in FY23.
  • Meanwhile, RHB’s gross impaired loans (GIL) ratio improved sequentially to 1.76% vs 1.83% in 1QFY24. However, the GIL ratio jumped from 1.64% last year due to higher GIL ratios for Thailand and Cambodia. 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 (corporate).
  • RHB Bank Group’s capital remains healthy, with a CET1 and Total Capital Ratio ending June 2024 at 16.5% and 19.2%, respectively. The liquidity coverage ratio stood at 139.6% (December 2023: 177.4%).

Impact

  • No change to our earnings estimates.

Outlook

  • RHB reported encouraging revenue growth in 1HFY24 and several key ratios that closely tracked management’s annual targets. Notable achievements include loan growth surpassing the targeted 4.5% (1HFY24: 4.9%), robust CASA accumulation, bringing the CASA mix to >28%, leading to a better NIM of 1.8-1.9% (1HFY24: 1.86%), and effective cost management with a CTI ratio below 47.5% (1HFY24: 46.3%). However, the ROE was 9.6%, slightly below the management’s 10% target.
  • Management will focus on managing asset quality by containing GIL and emphasising 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, continuously optimising capital utilisation through liability management initiatives, and realising CASA balances through various initiatives in the education and tourism sectors.

Valuation

  • We updated the beta and lowered our market risk premium from 6% to 5.5% for the banking sector on the back of the improving economic environment in Malaysia, the banking system’s healthy asset quality and capital ratios, stable interest rate environment and more positive investor sentiments. With that, we raise RHB’s TP from RM5.87 to RM6.28. Our valuation is based on an implied PBV of c. 0.79x based on the Gordon Growth Model and a 3% ESG premium. Given that the risk-reward potential has widened due to the revised TP, we upgraded RHB from hold to BUY.

Source: TA Research - 28 Aug 2024

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