PETALING JAYA: RHB Bank
Bhd’s potential re-rating catalysts include an improvement in net interest margin in financial year ending Dec 31, 2026 (FY26), additional cost reduction in FY26 to FY27, and a projection of return on equity (ROE) expansion from 10.1% in FY25 to 10.8% in FY28.
CGS International (CGSI) Research said in a report that it had reiterated its “add” rating on the lender, premised on these.
It said it hosted a one-day roadshow for RHB Bank in Hong Kong on May 7, during which RHB Bank’s management met up with institutional investors from five firms.
“The positive key takeaway is that RHB Bank still maintains its ROE target of at least 12% for FY27 (under its Progress27 transformation programme).
“This is significantly above our forecast even though we are projecting an expansion in RHB Bank’s ROE from 10.1% in FY25 to 10.7% in FY27,” it said.
It said based on its simulation, if RHB Bank managed to achieve an ROE of 12% in FY27, its net profit would be RM4.35bil in FY27, which is 10% above its projection of RM3.96bil net profit for FY27.
With this, the two-year compounded annual growth rate in RHB Bank’s net profit would be at an impressive 13.7% in FY25 to FY27, potentially the strongest in the sector, it said. It said in its view, the ROE expansion of RHB Bank in FY25 to FY27 (as expected by it and the bank) would emanate from the positive jaws in FY26 to FY27.
The key drivers for its topline growth in FY26 to FY27 would be higher income from bancassurance/bancatakaful (collectively referred to as banca) agreements and the capital market-related operations, in its view, it said, adding that the increase in its FY26 to FY27 overheads would be capped by its cost-reduction initiatives.
CGSI Research said the positive takeaways from the roadshow for the bank’s financial performance in FY26 were a three to six-basis-point expansion in net interest margin, 7% to 8% growth in non-interest income, and targeted cost take-out of RM300mil to RM350mil.
The research house said RHB Bank stated that its direct exposure to the Middle Eastern market was negligible at only 0.5% of its portfolio of fixed-income securities (but no direct exposure for loans). But the Middle Eastern tensions could have indirect negative impact on its asset quality arising from the high oil price, it added.
As a proactive measure, RHB Bank has offered some of its borrowers, whose profitability and cash flows may be affected by the high oil price, repayment assistance in the form of reduced monthly repayment to weather the pressures of higher operating costs, it added.
Potential downside risks for the lender are material deterioration in its loan growth and asset quality. It has maintained its FY26 to FY28 earnings per share forecasts and target price of RM10.30.
At last look, the counter was at RM8.27.
