Potential turnaround in growth for RHB in 2H

Non-interest income likely to be catalyst

PETALING JAYA: RHB Bank Bhd could potentially see a turnaround in non-interest income (NOII) in the second half of 2022 (2H22).

The banking group’s NOII has been suppressed since 4Q21, CGS-CIMB Research noted in a report and said this was primarily due to the losses in its holdings of fixed-income securities caused by the uptrend in bond yields.

“We expect a turnaround in the growth of NOII in 2H22 (versus 2H21 and 1H22).

“In view of the above and the positive impact from the overnight policy rate (OPR) hikes, we project a net profit growth rate of 9% half-on-half and 6.3% year-on-year (y-oy) in 2H22,” said the research firm.

Investment income

RHB Bank’s net profit in 2Q22 fell 9.5% y-o-y following a significant drop in NOII and a rise in tax expense, which was partly lifted by Cukai Makmur taxation.

However, its 2Q22 net profit rose 5.7% quarter-on-quarter, thanks to a 75% drop in loan loss provisioning (LLP).

The research firm said 1H22 net profit, which fell about 8% from a year ago, was below expectations as it accounted for 45% of CGS-CIMB Research’s full year forecast and 45.7% of a Bloomberg consensus.

However, the research firm added that it was not overly concerned about RHB Bank’s earnings miss in 1H22 as this was caused by adverse investment income and it expects this to improve in 2H22.

“As such, we keep our “add” call on RHB Bank, which is our top pick for the sector,” it added.

Potential re-rating catalysts could come from wider expansion in net interest margin relative to most of its peers amidst the OPR upcycles and above-industry loan growth, CGS-CIMB Research said.

In fact, CGS-CIMB Research sees it as the biggest beneficiary of OPR hikes among the larger banks, while its FY22 forecast dividend yield is also attractive at 5.3%.

Meanwhile, Kenanga Research said the banking group’s loans book trajectory is strong.

“The bank appears to have exceeded its loans growth target, thanks to its retail strengths with credit cost management providing buffers against uncertainties.

“Capital ratios are more than adequate should headwinds unexpectedly materialise,” said Kenanga Research.

Among key takeaways from a management briefing, the research firm said that “the group looks to maintain its FY22 targets, though we believe it would greatly outperform its loans growth target of 4-5%”.

Loan targets

This comes due to the continued momentum in its mortgage and auto finance segments, as well as its Singaporean operation.

“The group opines that current operating measures should keep its gross impaired loan targets to be well managed (<1.7%).

“But its commendable credit cost readings behind its 30 basis points target could suggest more room for improvement, should macros remain intact,” added Kenanga Research.

It noted that the banking group had in the recent quarter written back Rm35mil on specific oil and gas provisions, which could suggest its readiness to loosen other specific allowances in the near term, not including general overlays which would likely be reviewed in financial year 2023 only.

In terms of its repayment assistance programme, Kenanga Research said the group

registered a gradual improvement to 4% of total domestic loans in July 2022, which are

predominantly on R&R (reschedule and restructure) terms as opposed to deferment.

The research firm maintains an “outperform” on the stock with a RM7 target price.

“We believe the stock’s leading value proposition is its leading capital ratios, which provides buffers for capital management.

“Additionally, the group’s prospects are fuelled by its digital banking positioning with its partner Boost, which is due to be launched in 2024 and could uplift sentiment with progressive developments,” added Kenanga Research.