RHB’s hefty net interest margin compression in quarter one 2023 was buffered by higher non interest income and lower credit cost. While results were within expectations, Maybank Investment Bank Bhd (Maybank IB) lowered their net interest margin assumptions and cut financial year 2023-2025 estimate earnings by 5-6%.
“We maintain a BUY on RHB with a lower trading price of RM6.40, pegging financial year 2023 estimate price to book value to a lower price to book value of 0.9x versus 1x previously. Financial year 2023 estimate dividend yield is attractive at more than 7%. BUY maintained,” said Maybank IB.
RHB’s quarter one 2023 core net profit of RM762 million was within expectations at 26%/24% of Maybank IB’s full-year forecast/consensus respectively.
Operationally, the performance was below expectations, largely on account of a significant net interest margin contraction in quarter one 2023, but earnings were held up by lower credit cost of just 10 basis points in quarter one 2023 versus 29 basis points in quarter one 2022 and the absence of Cukai Makmur.
Net interest margin contracted by a large 46 basis points quarter-to-quarter to 1.9% in quarter one 2023 from 2.36% in quarter four 2022, and by 26 basis points year-on-year from 2.16% in quarter one 2022.
Against an average net interest margin of 2.24% in financial year 2022, the contraction was 34 basis points. This is much weaker than management’s earlier expectation for flat net interest margins this year.
Maybank IB has since dropped their financial year 2023 net interest margin estimate to 2.04% from 2.17% previously, on expectation of some net interest margin improvement in second half of 2022.
Credit cost was just 10 basis points in quarter one 2023 and this compares against an average of 21 basis points in financial year 2022. Management overlays are currently still intact at RM411 million with no write-backs thus far. Management has yet to revise its credit cost guidance of 25-30 basis point, but is optimistic of improving on this guidance.
“We lower our credit cost estimate to 25 basis points from 30 basis points for the financial year 2023,” said RHB.
