We maintain our GGM-derived PBV TP of RM7.00 (COE: 10.7%, TG: 3.0%, ROE: 10%) and OP call. The group held an analyst briefing to discuss in detail strategies to achieve its TWP24 targets. We keep our medium-term optimism for the stock unchanged as we do not anticipate major overruns or overhauls in the near future. Key investment thesis remains to be its CET-1-led defensiveness. There is no adjustment to our TP based on ESG of which it is given a 3-star rating as appraised by us.

RHBBANK hosted an analyst briefing for a detailed presentation of its TWP24 Strategy. Key takeaways are as follows:

- Reinforcing frontline channels. The group identified strong opportunities in its wealth management segment where it opines it could at least double its AUM by 2024 and tap into a larger affluent customer base, given highly encouraging current take-ups. Meanwhile, the group intends to capture a larger SME market share to 12% (from 9% currently) with secure lending being a leading proposition with value-added digital solutions and hyper- personalisation to instil customer stickiness. ESG-enablement solutions would also provide borrowers a better leg into more sustainable practices.

- Expanding overseas footprint. Capitalising on its Singapore operation, a more diverse regional hub could be established to boost its commercial and SME lending in the ASEAN region. That said, Cambodia looks to be a new focus area where the group strives to gain 20% annual loans growth in the next three years. Backed by its growth potential, earnings expansion of 10% per year from Cambodia and Singapore combined may not be too farfetched (albeit, total international businesses make up less than 5% of group earnings at this juncture).

- Investing in a more comprehensive back-end. The group seeks to allocate up to RM500m over the next three years into modernising its operations, with several key automation prospects being identified to improve customer experience and productivity. A more seamless onboarding experience and greater implementation of data analytics would enable a more reactive approach by the bank in identifying and scaling into new segments. Meanwhile, the upskilling of manpower would be a progressive journey to ensure staff value and efficiency remain undeterred by future-proofing.

Post update, we leave our FY22E/FY23E assumptions unchanged. The headline 2024 targets for TWP24 of: (i) ROE: 11.5%; (ii) CIR <44.5%; and (iii) Top-3 standing in net promoter score, are all-in in sync with its immediate FY22 stepping stone targets. Current expectations lay that the country will not fall into a recession though we will not be too worried on minor economic hurdles at this juncture. The group’s 4-5% loans target for FY22 is amongst the most conservative amongst its peers which we think could be well achieved.

Maintain OUTPERFORM and TP of RM7.00. Our TP is based on a GGM-derived PBV of 0.91x (COE: 10.7%, TG: 3.0%, ROE: 10%) on our FY23E BVPS of RM7.66. The stock’s high capital ratios (CET-1: 17%) could allow to group to deliver more dividend surprises in spite of management’s existing guidance. Additionally, the group’s recent digital banking licence win could serve as a sentiment booster to the group as it nears the launch of its new entity and digital offerings. The stock is one of our 3QCY22 Strategy Top Picks.

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 - 5 Aug 2022