AmInvest Research retains Buy on RHB Bank

  • Analyst Reports
  • Tuesday, 31 Mar 2020

AmInvestment Bank Research maintained its BUY call on RHB Bank with an unchanged fair value of RM5.80 a share, pegging the stock to an FY20 P/BV of 0.9 times.

KUALA LUMPUR: AmInvestment Bank Research maintained its BUY call on RHB Bank with an unchanged fair value of RM5.80 a share, pegging the stock to an FY20 P/BV of 0.9 times.

It said on Tuesday the group does not foresee liquidity issues arising from the implementation of the relief measures announced by Bank Negara Malaysia.

“Recall that the group’s LCR was 152.7% in 4Q19. Under the stress test which the group had conducted, we understand that the LCR was still above 100%.

“The group is likely to lower its LCR but not lower than 100% that is temporary allowed by Bank Negara for banks to operate. The minimum NSFR for 1 July 2020 has been reduced by Bank Negara to 80% from 100%. However, the group will maintain an NSFR of slightly above 100%, ” it said.

AmInvest Research said RHB Bank hosted a conference call on Monday to provide updates on the measures announced by Bank Negara to assist borrowers impacted by the Covid-19 outbreak.

Retail, SME and corporate loans comprised 55%, 16% and 29% respectively of the group’s total domestic loans of RM156.9bil as at end Dec 2019. The group is assuming all domestic retail and SME borrowers will opt for the automatic moratorium to defer their repayments, principal and interest on loans for a period of 6 months from 1 April 2020.

Corporate borrowers will need to apply to the bank for the moratorium. 30% of the total domestic corporate loans have been projected to be requiring the moratorium. This will lead to circa 80–81% of the group’s total domestic loans to be granted moratorium.

“We gather that during the moratorium, interest will be accrued for six months without being compounded.

“Within this six-month period, the group will actively approach its borrowers to restructure and reschedule their loans. This will prevent loans from falling over to stage 3 once payment resumes at the end of the moratorium.

“On the group’s overseas loans, the group is closely monitoring its exposure to the oil & gas, hotel and tourism sectors in Singapore, ” it said.

Meanwhile, Affin Hwang Capital research lowered RHB Bank Bhd's 2020-2022 net earnings forecasts as it maintains a bearish outlook on the banking sector.

The research house maintained its sell rating on the bank with a reduced price target of RM3.80 from RM4.40 previously.

According to RHB, following the recessionary impact in 2020, it expects a recovery in 2021 to be gradual.

"Our concerns for the banking sector is due to the risk of higher provisions arising from asset quality deterioration as indiviuals’ incomes are affected by unemployment risk, while the business sectors at risks also face cashflows constraints (in sustaining operational costs).

"We are of the view that bankruptcy cases may be on the rise, but may only show up in 2021," it said.

In a recent webinar, RHB said it has sufficient liquidity to manage its cashflows given the automatic moratorium period of six months granted to individuals and SMEs.

It added that asset quality may likely deteriorate further above 2% after the moratorium is lifted.

The bank also said its 2020 ROE could dip below 10% and it would likely miss its 2020 loan growth target of 4%.

RHB's exposure to vulnerable sectors such as aviation and tourism makes up about 2% of the domestic retail loanbook and 9% of non-retail loanbook, which represents about 5% of domestic loans.

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