PETALING JAYA: RHB Bank Bhd is expected to see potential re-rating catalysts in the form of a recovery in net interest margins, the downtrend in loan-loss provisioning (LLP) and robust fee income.
According to CGS International Research (CGSI Research), RHB Bank is another Malaysia bank, apart from AMMB Holdings Bhd
, that managed to register strong net interest income growth of 8.9% year-on-year (y-o-y) in the third quarter ended Sept 30, 2024 (3Q24) despite the weak loan expansion of only 3.7% y-o-y.
This was mainly due to the six basis point y-o-y increase in its net interest margin in 3Q24.
The 35.2% y-o-y drop in LLP and 141.9% y-o-y surge in non-interest income were the catalysts for the strong 28.2% y-o-y increase in RHB Bank’s net profit for 3Q24.
“We project a net profit of RM723.7mil for RHB Bank in 4Q24. This represents a quarter-on-quarter decline of 13.1% as we do not expect its high non-interest income in 3Q24 (which climbed 141.9% y-o-y) to be sustainable.
“However, the y-o-y net profit growth in 4Q24 is likely to be strong at 23.5% (due to the lower base in 4Q23), to be driven by higher net interest income and a y-o-y decline in LLP, in our view,” the research house said.
It said RHB Bank’s net profit for the nine-month period ended Sept 30 (9M24) was within expectations, accounting for 76% of its full-year forecast.
The 9M24 net profit only rose by 2.9% y-o-y as the 77% y-o-y jump in non-interest income was partly offset by the 546.5% y-o-y surge in LLP.
CGSI Research maintained its “add” rating for RHB Bank and its FY24-FY26 earnings per share forecasts but raised its target price to RM7.25 from RM7.
Similarly, Kenanga Research kept its “outperform” call with a target price of RM7.55 for RHB Bank.
Kenanga Research said RHB Bank’s 9M24 net profit was within expectations, with efforts to retain net interest margins continuing to pay off.
“RHB Bank continues to lead with regards to dividend yields in spite of a dilution to mid-6% from 7% following a recent share price rally.
“RHB Bank looks to have a better handle on its net interest margins recovery now on track without heavy dependency on liability management.
“In spite of its heavy utilisation in the previous quarters which mostly gained from US dollar rates appreciating, the relatively stable rates at present should not pose any cost risks given that its settlement costs are typically predetermined,” the research house said.
The research house pointed out that RHB Bank is still leading the industry in terms of dividend yield of mid-6%, although its previous dividend yield of 7% was diluted following the recent share price rally.
It added that yield could be further lifted should the banking group decide to release its hefty Common Equity Tier 1 portfolio (16.6%) to reward shareholders.
