RHBBANK’s 1QFY24 net profit (-4% YoY) was within expectations with the group still confident to achieving its targets albeit with a pinch of precaution. Certain SME and overseas accounts are seeing stress but the group believes the impacts are well-contained. Meanwhile, Boost Bank looks to launch soon. Our forecasts are relatively unchanged. Maintain OUTPERFORM and GGM-derived PBV TP of RM7.25. RHBBANK is one of our 2QCY24 Top Picks.

Within expectations. RHBBANK’s 1QFY24 net profit of RM730.2m came in at 24% of our full-year forecast and 26% of consensus full-year estimate. No dividend was declared this quarter as the group typically makes biannual payments.

YoY, 1QFY24 total income improved by 10%, mostly thanks to gains in net interest income (+10%) tracked by a higher loans base (+5%) and recovering NIMs (2.00%, +9 bps). Meanwhile, non-interest income also increased by 7% from better treasury income. That said, 1QFY24 net profit declined by 4% as cost-income (45.9%, +1.0 ppt) was mostly stretched by union wage reviews and comparatively higher credit cost (38 bps, +28 bps) given stress observed in certain SME and international accounts.

QoQ, total income growth was more moderate (+3%) owing to softer fee- based streams. In addition to lower effective taxes, 1QFY24 earnings managed to improve by 25% as operating expenses and credit costs also gradually subsided.

Briefing highlights. No changes in guidance were present but the group leans towards being cautiously optimistic in lieu of visible challenges ahead.

1. The group showed stronger headways in its loans growth with its Singapore portfolio expanding by 22% and mortgages still appearing quite supportive (+9%). That said, the group prefers to abstain from raising the floor of existing loans growth target of >4.5% as it may choose to not undertake less profitable accounts to preserve margins.

2. Its liquidity management initiatives continue to serve well in balancing the group’s overall profitability, albeit not encapsulated within NIMs. While it is still dependent on stable demand for USD to be viable, we take comfort on easing market competition likely to uplift NIMs in the upcoming quarters. The group’s target of 1.80%- 1.90% is unchanged.

3. Asset quality pains seem to emerge from the recent reporting. That said, the group believes in the recovery of its repayments which are also mostly secured and guaranteed. Given the current optics, there could be no need for further escalation of its provisioning.

4. Boost Bank looks to be launched to the market soon, with the group believing that associate losses from here will be well managed, which we opine could indicate a quicker revenue model as compared to its peers. The group eyes a breakeven point within 4-5 years of its operations, within the foundational phase imposed by BNM.

Forecasts. Relatively unchanged following model updates to incorporate 1QFY24.

Maintain OUTPERFORM and TP of RM7.25 based on an unchanged GGM-derived FY25F PBV of 0.93x (COE: 10.5%, TG: 3.0%, ROE: 10.0%) against FY25F BVPS of RM7.75. 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. RHBBANK is one of our 2QCY24 Top Picks.

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 - 30 May 2024