1QYFY23 net profit of RM762.2m (+31%) came within expectations. Interest margins were burdened by the past OPR hikes as asset yields were outpaced by funding costs. While efforts are in place to narrow the gap, fair value gains are alleviating earnings together with lower provisions and taxes. RHBBANK is expected to generate dividend yield of c.7% should current expectations hold. Maintain OUTPERFORM and GGM-derived PBV TP of RM7.10. RHBBANK is one of our 2QCY23 Top Picks.
1QFY23 within expectations. 1QFY23 net profit of RM762.6m made up 24% each of both our full-year forecast and consensus full-year estimates. No dividend was declared, as expected given the group’s typical biannual payments.
YoY, 1QFY23 registered a 4% decline in net interest income. Despite a 6% growth in gross loans led by higher mortgages, net interest margin (NIM) eroded by 19 bps as fund cost rose as a result of the four 25 bps hikes in OPR in 2022. On the flipside, non-interest income surged 33% as treasury income enjoyed fair value gains from losses in prior years, offsetting the decline in fee-based income. Cost-income ratio remained stable at 44.9% (+0.1ppt) as operating expenses grew in line with total income. Meanwhile, thanks to credit costs reporting at 10 bps (-19 bps) on lower asset quality stresses, pre-tax profit saw a 16% expansion. Following the lapse of Prosperity Tax, 1QFY23 net profit came in at RM762.6m (+31%).
Briefing highlights. Though there are some headwinds flagged in the recent results, the group sought to maintain its guidance, pending better clarity from 2QFY23’s performance.
Forecasts. Post results, our FY23F/FY24F earnings are largely unchanged safe for 1QFY23’s model inputs.
Maintain OUTPERFORM and TP of RM7.10. Our TP is based on an unchanged GGM-derived FY24F PBV of 0.91x (COE: 10.7%, TG: 3.0%, ROE: 10.0%). It is positioned as a leading dividend yield candidate with yields averaging above 7% at current price levels. This could be further lifted should the group decide to release its hefty CET1 portfolio to reward shareholders. The stock will still likely be monitored closely due to its tie-in with Axiata-Boost in relation to the upcoming launch of a new digital bank in the near future. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us. RHBBANK is one of our 2QCY23 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) further slowdown in capital market activities, (v) adverse currency fluctuations, and (vi) changes to OPR.
Source: Kenanga Research - 29 May 2023