Review

• RHB Bank reported stronger 9MFY24 results, with the net profit surging by 16.7% YoY to RM2,285.7mn from RM1,958.3mn last year due to a combination of higher income and lower operating expenses. Sequentially, the 3QFY24 net profit grew by 15.4% to RM833.2mn. RHB Bank’s YTD net profit accounted for 79% of our full-year forecast. ROE improved to 9.8%, still trailing management’s target of >10% for the year but slightly ahead of the 9.5% registered in FY23.

• 9MFY24 net fund-based income increased by 5.2% YoY (+3.6% QoQ). The 9M Net Interest Margin (NIM) expanded by 5 bps YoY to 1.87%, or 1.98%, underpinned by ongoing liability management initiatives. Sequentially, the NIM broadened by 1 bp QoQ. The net fund-based income also rose due to higher loan growth of 3.7%. Normalised for forex, the loan growth expanded by 4.9% YoY.

• The increase in loans was led by Group Community Banking (+6.4% YoY), where the Retail segment expanded by 7.5% due to mortgages (+8.9% YoY), auto finance (+12.1% YoY), unsecured business loans (+6.8% YoY). The SME segment broadened by 2.0% YoY. Meanwhile, the Group Wholesale Banking climbed by 1.4% YoY, as the 1.8% decline in Corporate loans was offset by higher loans in the Commercial segment (+17.7% YoY). By geography, overseas loans contracted 4.3% YoY, led by Singapore (-1.0% YoY). Domestically, total loans and advances widened by 5.1% YoY.

• Total customer deposits broadened by 5.0% YoY. CASA deposits grew by 5.0% YoY to RM66.8mn, while MMTD rose at a faster pace of 13.1% YoY to RM30.2mn. QoQ deposits sank 1.3% on the back of declines in FDs (- 2.4%) and CASA (-1.2%) as management noted that the deposit portfolio was rebalanced to further optimise the COF. The CASA ratio stood at a healthier 28.0% vs 26.9% in 3QFY23.

• Overall, the 9MFY24 non-fund-based income broadened by 26.4% YoY (+4.5% QoQ), attributed to higher fee income (+15.4% YoY) and treasury income (+34.0% YoY). There was also an uplift from a one-off gain on the disposal of RHB Securities Vietnam for RM33.6mn. Nevertheless, fee income remained healthy QoQ, rising 2.3%, driven by IB Related (+28.4%), Brokerage Income (+4.0%) and Commercial Banking (+0.3%). Elsewhere, treasury income, which comprises Forex Gains/Derivatives and Gain & MTM on Securities, rose 12.4% QoQ to RM378.5mn attributed to Gain & MTM on Securities (+86.7%).

• 9MFY24 operating expenses expanded by 8.7 YoY (+1.0% QoQ). Yearly, the increase was led by Marketing expenses (+28.6% YoY), Establishment Costs (+12.9% YoY), of which most of it was for IT enhancements (+24.5% YoY), and Personnel Costs (+6.9% YoY). Admin & General Expenses declined by 3.4% YoY. RHB’s 9MFY24 cost-to-income (CTI) ratio improved to 46.0% vs 47.1% in FY23 due to positive JAWs.

• YoY, 9MFY24 allowances for loan losses ballooned to RM461.1mn vs. RM71.4mn a year ago. The credit charge ratio climbed to 24 bps from 16 bps in FY23. Excluding one-off ECL for Thailand amounting to RM168mn, the 9M credit cost would be at 16 bps.

• Meanwhile, RHB’s gross impaired loans (GIL) ratio rose sequentially to 1.77% vs 1.76% in 2QFY24, driven by higher GIL ratios for Thailand and Cambodia. By segment, we note YoY upticks for some major segments within Group Community Banking (such as mortgage and SME), as well as Group Wholesale Banking (corporate).

• RHB Bank Group’s capital remains healthy, with a CET1 and Total Capital Ratio ending September 2024 at 16.6% and 19.3%, respectively. The liquidity coverage ratio stood at 124.0% (December 2023: 177.4%).

Impact

• Adjusting our earnings forecast to align with RHB’s 9M results performance, we raised FY24/25/26 net profit to RM3,028/3,307/3,603mn from RM2,904/3,106/3,313mn, respectively.

Outlook

• RHB reported encouraging revenue growth in 9MFY24 and several key ratios, except ROE, that closely tracked management’s annual targets. Notable achievements include loan growth surpassing the targeted 4.5% (9MFY24: 4.8%), better NIM of 1.8-1.9% (9MFY24: 1.91%) due to liability management initiative, and effective cost management resulting in a CTI ratio below 47.5% (9MFY24: 46.0%). However, the ROE was 9.8%, slightly below the management’s 10% target.

• Management will focus on managing asset quality by containing GIL and emphasising recoveries for the rest of the FY. For now, management projects to achieve a net credit cost of around 20-25 bps and aims to keep the GIL ratio below 1.75%. Other priorities include optimising the COF and operating expenses.

Valuation

• Adjusting for the upward revision in forecasts, we raise RHB’s TP from RM6.28 to RM7.42. Our valuation is based on an implied PBV of c. 0.92x based on the Gordon Growth Model and a 3% ESG premium. Given that the risk-reward potential has widened due to the revised TP, we upgraded RHB from hold to BUY.

Source: TA Research - 2 Dec 2024