The stock's current valuation of P/BV of 0.8x for FY25F is fair based on our projected ROE of 9.2%. Moving ahead, we see limited uplift in ROE as growth in trading and investment income could moderate amidst a challenging market condition and uncertainties in US interest rate movements while NIM in 4QFY24 could be pressured again from the year-end seasonal deposit competition. Loan loss cover at 70.6% remained low compared to the industry's 90.8%. Potential recoveries from corporate loans related to the hospitality sectors in Thailand and Cambodia are expected to lower the GIL ratio further from 1.77% in 3QFY24. Maintain HOLD with unchanged TP of RM7.00/share pegging the stock to CY26 P/BV of 0.8x based on ROE of 9.1% with a neutral 3-star ESG rating.

• Earnings within expectations. RHB Bank's 9MFY24 earnings of RM2.29bil (+2.9% YoY) were within expectations making up 76.9% of our and 77.6% of consensus estimate. The modest growth in net profit was driven by higher total income partially offset by increase in operating expenses (OPEX) and loan provisions. On QoQ, earnings improved by 15.4% supported in higher total income, lower OPEX and ECL.
• Loan growth moderated while NIM rose modestly by 1bps QoQ in 3QFY24. Growth in loans eased to 3.7% YoY in 3QFY24 from 6.4% in 2QFY24 attributed to the slower pace of international loans which included Singapore. Excluding FX impact, the group's loans expanded by 4.9% YoY. Domestic loans grew 5.1% YoY slightly below the industry's 5.6% YoY driven by growth in group community banking and commercial loans. Meanwhile, corporate loans contracted. NIM improved by 1bps QoQ to 1.91% in 3QFY24. 9MFY24 NIM of 1.87% was in line with management's guidance of 1.82-1.88% for FY24. CASA ratio was stable at 28% in 3QFY24.
• Higher FX gains, trading, investment income and fees lifted NOII in 3QFY24. Positive JAW of 2.6% YoY led to an improved CI ratio of 46% in 9MFY24. 3QFY24 saw higher NOII by 4.5% QoQ supported by increase in fees from IB, commercial banking and brokerage coupled with increase in gains from securities. Islamic Banking recorded a loss of RM340mil in 9MFY24 from investment of shareholders' funds. This was due to a marked-to- market FX losses from a transaction entered with a customer by hedging with the conventional bank. Nevertheless, the losses were mitigated and zerorised at group level with the conventional bank hedging out the risk with an external bank. This has resulted in gains recorded at the conventional bank.
• Asset quality stable with ECL trending lower in 3QFY24. Group GIL ratio was stable at 1.77% in 3QFY24. Domestic GIL ratio was 1.54%. ECL on loans declined to RM100mil in 3QFY24 from RM147mil in 2QFY24. The group continues to focus on recovery. Potential recoveries in Thailand and Cambodia are expected to lower its GIL ratio and increase loan loss cover from 70.6% as of end 3QFY24. Outstanding management overlays were RM294mil.

Source: AmInvest Research - 1 Dec 2024