RHB Bank Berhad’s (RHB) outlook is more upbeat at the back of its satisfactory 3QFY23 earnings and its net interest margins (NIMs) have reverted positively for the quarter, possibly indicating that downside pressures have subsided.
However, it may face near-term challenges that could drag certain metrics which have led to lower FY23 guidance.
Post-results, Kenanga Research in its note today (Nov 28) said the group’s 9MFY23 net profit was above its expectation, up by 16% YoY.
“The group’s 9MHFY23 net profit of RM2.22 billion was above our full-year forecast, making up 81% of that. The deviation was owing to lower-than-expected NIMs performance following concerns of continued funding cost strain to the group.
“That said, it was within consensus full-year estimate, at 78%. Post-results, we had revised our NIMs assumptions following a more upbeat tone to its trajectory, following close to its NIM range of 1.8% to 1.9% for FY23 and some improvements in FY24.
“However, the research house said loans growth should stay supportive, which led it to revise its FY23F/FY24F earnings forecasts higher by 4% and 5%, respectively.”
Consequently, Kenanga maintains OUTPERFORM call and TP of RM7.15, with no adjustment to its TP based on ESG given a 3-star rating as appraised by us.
“Our TP is based on an unchanged GGM-derived FY24F PBV of 0.93x (COE: 10.5%, TG: 3.0%, ROE: 10.0%). It is positioned as a leading dividend candidate with yields averaging above 7% at current price levels.
“This could be further lifted should the group decide to release its hefty CET-1 portfolio to reward shareholders. The stock will still likely be monitored closely due to its tie-in with Axiata-Boost in relation to the upcoming launch of a new digital bank in the near future,” it said.
The research house attended a briefing with RHB Bank and highlighted a few outcomes from the briefing, including that RHB had opted to revise most of its headline targets downwards with the exception of loans growth.
“The group’s loans growth expectations have inched up slightly to between 5% and 5.5%, from between 4% and 5%.
“Aside from mortgages, for RM500,000 to RM700,000 homes, the group is seeing strong acquisitions from its Singapore books fuelled by corporate accounts in the real estate segment, which may continue to support till the end of the year.
Aside from that, Kenanga noted that RHB’s NIM pressures have elevated despite previous warnings of continued compression, as it had managed to contain further increases to funding costs.
“That said, it will likely remain softer when compared to FY22 paired with the lack of aggressive interest rate upcycle. Maintaining at 1.80% to 1.90% is expected by the group.
“Although it has loan loss coverage of 75% without utilising regulatory reserves, the group does not appear to be in a hurry to shore up further provisions. Asset quality concerns are not as significant, with risks leaning towards unsecured SME accounts which may only be 20% of segment portfolio.
“Thus, deterioration has already been seen with GIL guidances now higher at 1.7%-1.8% (from less than 1.5%). On the flipside, BAU credit cost is expected to land at 20-25 basis points (bps) which may not reflect a heavy 4QFY23 provisioning,” it said, adding the group maintained its management overlays of RM538 million.
The risks to Kenanga’s call include a higher-than-expected margin squeeze, lower-than-expected loans growth, worse-than-expected deterioration in asset quality, slowdown in capital market activities, unfavourable currency fluctuations, and changes to OPR.
