RHBBANK’s FY23 net profit (+5% YoY) and dividends were within expectations. While the group had missed certain targets in FY23, it believes it could position well in FY24 with support from its regional units, albeit with possible risks to asset quality. Boost Bank has obtained its approval to operate in Jan 2024 and may be publicly available in the coming quarters. Maintain OUTPERFORM with a higher rolled over GGM-derived PBV TP of RM7.25 (from RM7.15).

FY23 within expectations. RHBBANK’s FY23 net profit of RM2.81b made up of 101% of our full-year forecast and 99% of consensus full-year estimate. Meanwhile, an interim dividend of 25.0 sen was also within expectations for a full-year payment of 40.0 sen (c.60%) against our anticipated 41.0 sen.

YoY, FY23 total income declined (-5%) as net interest income fell (-10%) on the back of NIM pressures (1.92%, -34 bps) from tight deposits competition, undermining a 4.8% loans growth. On the flipside, non-interest income grew 14% following stronger treasury and investment performances. While operating expenses increased by 2%, owing to the softer top line, cost-income ratio expanded to 47.5% (+3.2ppt). Impairment-wise, credit cost was slightly higher at 16bps (+1bps) on stable asset quality, albeit with minor write-backs on tow. Thanks also to write-backs on financial investments, FY23 net profit managed to come in at RM2.81b (+5%).

QoQ, 4QFY23 top line saw similar trends as the above, with NIMs being aggravated by year-end deposits competition. Meanwhile, operating expenses were deeper (+8%) from IT enhancements and loan provisions rising as more accounts had emerged into Stage 3. All this led 4QFY23 net profit to be 10% lower at RM585.9m.

Briefing highlights. The group had been shy of meeting some of its FY23 targets but believes it is positioned to deliver in FY24.

1. FY23 loans growth of 4.8% missed its 5.0%-5.5% target due to delayed drawdowns during the year-end which came in at Jan 2024. Conservatively, the group earmarks 4.5% to be delivered for FY24 with strong support expected from its regional operations. We opine the group believe there could be domestic challenges ahead and macroeconomic uncertainties towards businesses, albeit likely cushioned by a steady mortgage book.

2. NIM strains persist due to high volumes of foreign exchange swaps during the year to support Ringgit-based assets. This could have dragged 4QFY23 NIMs to be the lowest quarter during the year. The group sought a NIM target of 1.80%-1.90% in hopes that stabilisation of market rates are most likely amidst flattish OPR expectations.

3. While the group had done well to contain credit cost, it drew a guidance of 20-25 bps for FY24. The group has been gradually utilising its overlays (4QFY23: RM320m) which we believe could be exhausted soon as the group had not provided meaningful top-ups during the year. We noted that there has been a rise in GIL for its mortgage books as well as foreign operations which we believe may call for a drawdown.

4. Its digital bank, Boost Bank is not likely to incur deep heavy losses to the group going forward, as it has mostly incurred the bulk of its development expense in FY23. That said, the bank is currently in alpha testing and limited to internal members of the group. Likely akin to its peers, it may not have a revenue stream during its commercial launch in the coming periods, and hence will continue to be in the red.

Forecasts. Post results, our FY24F earnings were tweaked by -1% from model updates. Meanwhile, we introduced our FY25F numbers

Maintain OUTPERFORM with a higher TP of RM7.25 (from RM7.15), as we roll over our valuation base year to FY25F BVPS of RM7.78. 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 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 - 28 Feb 2024