KUALA LUMPUR (Nov 28): RHB Bank’s 6.5% drop in net profit for the third quarter ended Sept 30, 2023 (3QFY2023 has drawn mixed reaction from investment analysts covering the stock, which eased six sen or 1.08% to RM5.51 in early trade on Tuesday.

While maintaining its buy call, MIDF Research cut its target price for the stock to RM6.50 from RM6.66. TA Securities changed its "buy" call to "hold" and reduced its target price to RM5.70 from RM5.90. Meanwhile, CGS-CIMB raised its target price to RM6.70 from RM6.56, while maintaining its add rating.

The research house said it was projecting a quarter-on-quarter net profit growth of 9.7%, underpinned by continuous expansion in net interest income (NIM), coupled with an expected decline in loan loss provisions.

"The bank also guided that loan growth would remain robust in 4Q2023F [our forecast: up 1.8% q-o-q], compared with the lethargic trends in 1H2023, and that 4Q2023F NIM would be at least sustained qoq.

On the other hand, MIDF raised concern about the bank’s lower loan loss coverage (LLC) ratio of 75% for the third quarter, saying that it may be difficult for the bank to cushion any short-term increase in impairments stem from macro headwinds and tight monetary policy.

“LLC fell to a low 75%, despite management guidance in 2QFY2023 (83% then) for larger recoveries to push up the figure. Management states the brunt of the delinquencies happening within 3QFY2023 was heavily collateralised, hence no immediacy in topping up,” said MIDF in a note on Tuesday.

MIDF believe that the scale of impairments in 3QFY2023 was higher than expected.

TA noted that net interest margin (NIM) compressed by 39 basis points year-on-year to 1.85% for 3QFY2023. With narrower NIM, TA reduced its earnings forecast for RHB by 6.6% for FY2023, 5.4% for FY2024 and 3.8% for FY2025.

“Downside risks include steeper-than-expected NIM compression and rising overhead expenses as the group continues to invest in IT and Digital to drive efficiencies,” said TA in a note on Tuesday.

Hong Leong Investment Bank, meanwhile, expects RHB's NIM to trend sideways in the next quarter, considering competition for fixed deposits remains benign.

“Furthermore, lending growth is seen to pick up as RHB is anticipating larger business loan drawdown in 4QFY2023. Overall, we find RHB’s risk-reward to be balanced, as there are no new positive catalysts to spur share price upwards,” said the investment bank, which maintained its “hold” call and target price of RM6.00.

Hong Leong also raised concerns about the lower LLC of 75% as it was beneath pre-pandemic level of circa 85%.

RHB Bank's net profit for 3QFY2023 slipped to RM649.95 million for 3Q ended Sept 30, 2023 (3QFY2023), from RM695.41 million a year ago, mainly due to lower net fund based income.

At the market close, the counter declined by six sen or 1.08% to RM5.51, for a market capitalisation of RM23.62 billion.