Enticing FY21-22F dividend yields of 6-7%
? FY21 CNP was 8% above our projection due to higher-than-expected net interest income. FY21 DPS of 40 sen was also above our projected 30 sen.
? We are projecting a weak CNP growth of 1.6% in FY22F due to Cukai Makmur, excluding which, FY22F CNP growth would be 13.8%.
? Reiterate Add, given its above-industry loan growth, attractive valuation (CY23F P/E of 6.8x), and enticing dividend yield of 6% in FY22F.
Final results and dividend above expectation
RHB Bank’s FY21 core net profit (CNP) (excluding modification loss) was 8% above our projection due to higher-than-expected net interest income (arising from the improvement in loan growth). However, FY21 CNP was within the market’s expectation, at 99% of Bloomberg consensus’ estimate. Another positive surprise was the higher-than-expected FY21 DPS of 40 sen (dividend payout of 58%) vs. our projected 30 sen (dividend payout of 46.2%). This translated into a compelling dividend yield of 7% in FY21, one of the
highest in the sector.
4Q21 CNP growth driven by a plunge in LLP
RHB Bank’s total revenue slid by 7.2% yoy in 4Q21, with the decline of 5.1% yoy in net interest income and 29.4% yoy in non-interest income. Notwithstanding the lower topline, 4Q21 CNP surged by 43.6% yoy, underpinned by an 85.7% yoy plunge in loan loss provisioning (LLP). 4Q21 CNP rose by 4.9% qoq as the 65.5% qoq drop in LLP was partly offset by the 29.3% qoq contraction in non-interest income.
Weak FY22F CNP growth due to Cukai Makmur
We are projecting a weak CNP growth of 1.6% for RHB Bank in FY22F, primarily due to the additional taxation under Cukai Makmur. Excluding the one-off tax, RHB Bank’s FY22F CNP growth would be higher at 13.4%, primarily underpinned by a projected 5.2% rise in net interest income and a 15.2% drop in LLP.
A steep decline in loan under repayment assistance
We are positive on the 59% decline in loan under repayment assistance, from RM52bn on 10 Nov 21 (31% of domestic loans) to RM21.3bn on 31 Jan 22 (12% of domestic loans). This signifies easing pressures from Covid-19 credit risks on its asset quality.
Upping EPS forecasts and target price
We raise FY22-23 CNP forecasts by 9-10%, mainly due to the increase of about 4% for net interest income. This lifts our DDM-based target price from RM6.40 to RM7.00
Reiterate Add call on RHB Bank
HB remains an Add in our book premised on its attractive valuation of 6.8x CY23F P/E and compelling dividend yield of 6% for CY22F. Potential re-rating catalysts would be the above-industry loan growth and our expected decline in FY22F LLP.