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%.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....