RHB’s 4Q22 profit rose 10% QoQ, thanks to stronger total income and expected credit loss writeback. Also, NIM expanded sequentially and GIL ratio improved. However, loans growth lost traction. Overall, results met expectations and thus, our forecasts were left unchanged. We still like RHB for its elevated CET1 ratio (indicating headroom for attractive dividend payout in the future) coupled with undemanding valuations. Maintain BUY and GGM-TP of RM6.60, based on 0.91x FY23 P/B.
Within estimates. RHB posted 4Q22 net profit of RM772m (+10% QoQ, +17% YoY on a core basis, ex-mod loss), bringing FY22 sum to RM2.7bn (-4% YoY). This was within expectations, forming 102-103% of both our and consensus full-year forecasts.
Dividend. Declared 2nd interim DPS of 25sen (vs 4Q21: 25sen; FY22: 40sen vs FY21: 40sen). Ex-date: TBD.
QoQ. Bottom-line rose 10% given better total income (+3%) and expected credit loss writeback. However, it was capped by the higher bad financial investment provisions and effective tax rate (+4ppt). At the top, we noticed expansion in net interest margin (NIM, +9bp), loans growth (+1.2%), and robust non-interest income (NOII, +5% due to higher forex gains).
YoY. The strong total income growth (+16%) and smaller allowances for bad financial investments (-50%), helped to lift profit by 17%. Again, NIM expansion (+10bp), loans growth (+6.9%), and spike in NOII (+34%) fuelled the sturdy top-line performance.
YTD. The 4% decline in profit was led by negative Jaws (opex growth outpaced total income by 2ppt) and higher effective tax rate (+9ppt). However, the 46% decrease in impaired loans provision and 32% drop in bad financial investment allowances, helped to alleviate the damage.
Other key trends. Both loans and deposits growth lost traction to +6.9% YoY (3Q22: +7.8%) and +3.9% YoY (3Q22: +5.4%) respectively. On a sequential basis, loan-to deposit ratio (LDR) remained flattish at 93%. As for asset quality, gross impaired loan (GIL) ratio was down 2bp QoQ to 1.55%, following improvement in SME, corporate, and Cambodia due to recoveries and write-offs.
Outlook. We expect sequential NIM to shrink given: (i) repricing of matured deposits, (ii) CASA being utilized and substituted to FD, (iii) price competition for FD is still stiff, along with (iv) diminishing flexibility to optimize LDR (already at high levels of c.93%). Also, loans growth is seen to moderate due to a softer domestic macro environment. Besides, GIL ratio is likely to climb but we are not overly worried as we believe RHB is better equipped vs prior slumps; the large pre-emptive allowances built up in FY20-21 and 3Q22 to fight Covid-19 pandemic woes and latency in credit loss from OPR hikes, act as robust buffer to cushion for any short-term asset quality weakness.
Forecast. Unchanged since 4Q22 results were in line.
Retain BUY and GGM-TP of RM6.60, based on 0.91x FY23 P/B with assumptions of 10.7% ROE, 11.4% COE, and 3.0% LTG. This is above its 5-year mean of 0.80x but in line with the sector’s 0.85x. In our view, the valuation multiple is fair, since its ROE output is comparable to sector average. For mid-sized banks, we continue to like the bank for its elevated CET1 ratio (indicating headroom for attractive dividend payout in the future) along with undemanding valuations.
Source: Hong Leong Investment Bank Research - 28 Feb 2023
