BUY maintained, TP raised
Our forecasts are conservative, and are about 5-10% below consensus for
FY22-23E, predominantly because we have taken a much more
conservative stance towards provisioning levels. Even so, we find
valuations decent at this stage, such that a BUY is warranted, with
potential room for earnings to surprise positively. Our forecasts are
maintained, but our TP is raised to MYR6.90 from MYR6.30, on a higher
CY23 PBV target of 0.93x (0.85x previously), supported by an ROE of 9.8%.
There is also room for dividends to be better than expected as well.
Expecting earnings rebound in FY23
The operating outlook for RHB looks positive at this stage – loan growth
looks healthy enough to sustain growth of at least 4-5%, NIM appears stable
with potential upside, while loans under repayment assistance have come
off to just 4.5% of total loans. Cukai Makmur is expected to be a drag this
year but we do anticipate strong earnings rebound in FY23E of 24% (-12.8%
in FY22E) in the absence of this.
Elevated credit cost assumptions
O&G related loans and bonds totalled MYR3.7b end-Dec 2021, making up
1.9% of total loans. However, having put through overlays over the years,
the loan loss coverage on both O&G loans and bonds is currently more than
100%. RHB foresees credit cost to range around 30bps to 35bps for FY22F
(MIBG: 40bps). Initial expectations are that FY23F credit cost could remain
above pre-COVID levels of 20-25bps (MIBG: 40bps).
Dividends could surprise positively
CET1 of 17.2% end-Dec 2021 is the highest among domestic peers. In FY21,
management proposed a final DPS of 25sen, taking FY21 DPS to 40sen. This
represents a payout ratio of 62.9%. We have assumed a payout ratio of 50%
moving forward and there is room for upside surprise should the bank take
its payout ratio back to around the 63% level. This would then take FY22’s
dividend yield to more than 6%.