Investment Highlights

• We maintain BUY recommendation on RHB Bank with a  revised fair value (FV) of RM6.80/share (from  RM6.70/share previously), pegging the stock to a P/BV  of 1x for FY23F and supported by ROE of 11%. 

• We maintain our net profit estimates as 1Q23 core  earnings were within expectations making up 23.6% of  our FY23F net profit and 24.4% of consensus’. However,  post-results briefing, we have lowered our dividend  payout expectation for FY23F to 50% from 63%. This  resulted in a slightly higher FY23F BV/share. 

• No Changes to Our Neutral 3-star ESG Rating.

• RHB Bank recorded higher underlying earnings of  RM762mil (+15.8% YoY) in 1Q23 after excluding the  impact of Cukai Makmur in 1Q22. The improved  earnings were contributed by stronger non-fund based  income and lower provisions, partially offset by weaker  net-fund based income due to net interest margin (NIM)  compression as well as an increase in overhead  expenses (opex). 

• The group’s non-fund based income grew by 39.7% YoY  in 1Q23. This was driven by higher treasury income (net  FX profit, realised and marked-to-market gains on  securities) which offset weaker fee income (lower IB,  brokerage, income from asset management and  commercial banking). 

• Loan growth moderated to 6% YoY in 1Q23 from 6.9%  YoY in 4Q22. The expansion in loan book was supported  by growth in mortgages, HP, SME, and loans in  Singapore. Domestic loans grew by 4.7% YoY, slightly  below the industry’s 5% YoY growth. 

• 1Q23 NIM Was Compressed by 26bps YoY to 1.9%, Contributed by Higher Funding Cost. 

• Operating expenses grew by 3.1% YoY in 1Q23, attributable to higher establishment costs which  comprised of IT spending, marketing, administration, and general expenses. CI ratio inched up to 44.9% in  1Q23 (1Q22: 44.8%), slightly above the group’s target of  ≤ 44.6% for FY23 as opex growth outpaced total income. 

• Provisions for loan losses fell by 62.4% YoY in 1Q23 attributed to lower ECL on loans. 1Q23 saw a net  writeback in allowance for losses on securities of  RM9mil vs. provision of RM8mil in 1Q22. 1Q23 credit  cost of 10bps was lower compared to 29bps in 1Q22.  Covid-19 related management overlays remained at RM410mil.

• The group’s GIL ratio rose to 1.59% in 1Q23 vs. 1.55% in  4Q22. The stage 2 loans ratio increased slightly QoQ to  5.71%. 

Source: AmInvest Research - 29 May 2023