RHBBANK's 9MFY24 net profit (+3%) was within expectations, with efforts to retain NIMs continuing to pay off. RHBBANK continues to lead with regards to dividend yields in spite of a dilution to mid-6% (from 7%) following a recent share price rally. Maintain OUTPERFORM and GGM-derived PBV TP of RM7.55.

9MFY24 within expectations. RHBBANK's 9MFY24 net profit of RM2.29b came in at 76% of our full-year forecast and 77% of consensus full-year estimate.

YoY, 9MFY24 net profit inched up (+3%) with NII gaining 5% on the back of a higher loans base (+4%) and NIMs recovering by 2 bps (to 1.87%). NOII also widened by 26% due to stronger treasury income performance.

Although CIR narrowed to 46.0% (-1.1ppts) as operating cost growth was more moderate, earnings were suppressed by higher provisions from RHB Thailand amounting to RM168m which led credit cost to 27 bps (+20 bps). These provisions are expected to be non-recurring with only a handful of its hospitality-related accounts facing difficulty in recovering post-pandemic. Adjusting for this, credit cost would instead come in at 17 bps against 9MFY23's heavier write-backs reported.

QoQ, 3QFY24 net profits grew by 15% with NIMs (+1 bps) benefitting from lower funding costs for the third consecutive quarter amid a slight decline in deposits (CASA ratio remaining flattish at 28%) and loans. Credit cost was also lower at 18 bps (-8 bps) due to hospitality-related provisions made in the subsequent quarter. Separately, it is noted that GIL still increased to 1.77% (+1 bps), owing to slightly higher staging in domestic mortgage books.

Highlights. Post shaky performance in prior quarters, RHBBANK looks to have a better handle with its NIMs recovery now on track without heavy dependency on liability management (via forex swaps). In spite of its heavy utilisation in the previous quarters which mostly gained from USD rates appreciating, the relatively more stable rates at present should not pose any cost risks given that its settlement cost are typically predetermined.

We note that Islamic operations also saw its portfolio shift towards the group's conventional bank, in addition to higher repayments during the quarter, of which the group anticipates to normalise in the near-term.

Forecasts. Our FY24F/FY25F earnings were tweaked slightly post-results model updates.

Maintain OUTPERFORM and TP of RM7.55 based on an unchanged GGM-derived FY25F PBV of 0.98x (COE: 10.2%, TG: 3.0%, ROE: 10.0%) against FY25F BVPS of RM7.75.

Although its previously leading dividend yield of 7% was diluted following the recent share price rally, RHBBANK's current yield of mid-6% still leads the industry. This could be further lifted should the group decide to release its hefty CET-1 portfolio (16.6%) to reward shareholders. The stock will still likely be monitored closely as a proxy of Boost Bank's deliveries. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us.

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 - 2 Dec 2024