Mixed views on RHB following low net interest income

CGSI Research has cut FY24-FY25 net profit forecasts for RHB by about 6.5%.

PETALING JAYA: Analysts are mostly mixed about RHB Bank Bhd’s latest results for the financial year 2023 (FY23), given the lower-than-expected net interest income (NII) performance.

Despite the non-recurrence of prosperity tax, the bank’s fourth-quarter 2023 (4Q23) net profit declined 24% year-on-year (y-o-y), dampened by a 17.5% y-o-y drop in NII.

Another earnings drag was the 532.1% y-o-y surge in loan loss provisioning, mainly from international businesses and corporate accounts.

On a positive note, CGSI Research said RHB’s latest results reflect the bank’s ability to keep a rein on the growth of its overheads, which was flattish (-0.3% y-o-y) in 4Q23.

“We are projecting earnings per share growth of 6.8% in FY24, underpinned by a 3.8% increase in NII and a 14.5% decline in loan loss provisioning,” it said in a report.

CGSI Research, however, has cut FY24-FY25 net profit forecasts for RHB by about 6.5% as it lowers NII projection for FY24-FY25 by about 7%.

Consequently, it reduced the stock’s target price (TP) to RM6.30 from RM6.70 previously.

CGSI Research continues to reaffirm an “add” call on RHB, given its enticing dividend yield of 7% for FY23 and 6.2% for FY24.

“The resumption of its NII growth in FY24, on the back of the bank’s increased focus on managing its cost of funds, could re-rate its stock,” it added.

Meanwhile, TA Research said RHB in 2023 was focused on tightly managing operating expenses, with spending focused on enhancing IT innovation and efficiency. The growth in non-fund-based income was robust, driven by higher net gains on foreign exchnage and derivatives, net trading and investment income as well as fee income.

“This helped offset the impact of lower net fund-based income. The group’s balance sheet also remained healthy with sustained asset growth,” it added.

Despite that, RHB’s management only achieved three out of five targets for the year under review.

Looking ahead to 2024, TA Research said the management aims to surpass a 10% return on equity via a stable 4.5% loan growth (FY23: 4.58%), more robust current account-savings account accumulation contributing to a better net interest margins of 1.8%-1.9% (FY23: 1.82%), and effective cost management with a targeted cost-to-income ratio below 47.5%.

“The primary focus will also be on managing asset quality, as there is a potential increase in domestic gross impaired loan (GIL) due to small and medium enterprises and specific major accounts, along with GIL from international businesses,” it said.

Furthermore, RHB’s management guides for a net credit cost of approximately 20 to 25 basis points and aims to keep the GIL ratio below 1.75%.

“Other priorities include maintaining a consistent dividend payout to reward shareholders with a dividend yield exceeding 7%, and continuously optimising capital utilisation for better returns,” it added.

TA Research, which reiterated a “hold” call on the stock, has adjusted the TP higher to RM5.90 from RM5.70 previously, despite a slight downward revision to its earnings estimates.

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