UOBKH Research raised its earnings forecast upward by 2% for RHB Bank’s FY24-FY26.
PETALING JAYA: Analysts expect RHB Bank Bhd’s financial performance to improve in the second half of the year (2H24) as the bank builds on the progress made with loan growth, asset quality and margins in 1H24.
CGS International (CGSI) Research is positive about the banking group as it foresees continued expansion in its net interest income on the back of improvement in loan growth and stable net interest margin, robust fee income growth as well as potential decline in loan loss provisioning.
“We are projecting a net profit of RM1.56bil in 2H24, representing a growth of 12.8% year-on-year (y-o-y),” the research house said in a report on the bank.
RHB Bank posted a net profit of RM722.3mil for the second quarter (down 10.7% y-o-y) and 1H24 earnings to RM1.45bil (down 7.5% y-o-y).
This were broadly in line with consensus full-year estimates.
It declared a 15 sen per share interim dividend.
MIDF Research highlighted that the bank had slowed down its intake of small and medium enterprise loans in the last couple of months.
This was likely due to the rising rate of impairments in this segment.
“Management did not confirm whether they will be refocusing this segment in the near future,” MIDF Research pointed out.
CGSI Research pointed out that RHB Bank’s gross impaired loan ratio target of below 1.75% for the year could be met.
The management had indicated that the gross impaired loan ratio is likely to trend downward in 2H24.
This is as some of its corporate impaired loans are in the “nursing” phase and could be reclassified as performing by year-end.
UOB Kay Hian (UOBKH) Research added that RHB Bank’s loan loss coverage (LLC) ratio of 70.4% remained well below the sector average of 114%.
The management is optimistic that LLC will improve to about 100%.
This is particularly after restructuring a specific corporate loan.
“Despite this optimism, the current low LLC makes it hard for the group to absorb any short-term increase in the gross impaired loan ratio.
“This poses upside risk to its full-year net credit cost targets,” the research outfit warned.
UOBKH Research raised its earnings forecast upward by 2% for RHB Bank’s FY24-FY26, after factoring in a stronger loan growth assumption.
It maintained a “hold” call on the banking group with a higher target price (TP) of RM6.39 a share (0.85 times FY25 price to book (P/B) value and 9.4% return on equity) from RM5.88 previously.
This is after rolling forward its TP to 2025, coupled with the upward earnings adjustment.
“We think the current valuation of -0.5 standard deviation to its historical mean P/B is fair. This is given the lacklustre 2024 earnings trend, coupled with upside risk to provisions, which is balanced by its relatively attractive dividend yields of 6.5% and high Common Equity Tier 1,” it said.
CGSI Research retained its FY24 to FY26 earnings forecasts for RHB Bank but raised its TP on the bank to RM7 per share from RM6.30 earlier.
It said the discount in valuation it had applied earlier was not needed.
This is because it expects credit risks for Malaysian banks to subside in light of stronger economic growth.
The research house reiterated its “add” call on RHB Bank, given its enticing dividend yield of 5.8% in FY24 and 2025 price earnings multiple of eight times which is one of the lowest in the sector.
Potential rerating catalysts include recovery in net interest margin and loan growth and robust fee income.
The downside risks to our call would be material deterioration in its loan growth and asset quality.
MIDF Research also revised its TP for RHB Bank to RM6.60 a share from RM6.06.
The TP is based on a revised FY25 P/B of 0.85 times, premised on the return of foreign investors and signs the bank’s asset quality woes seem to be over.
