Brighter outlook in 2Q22F due to OPR hike
? 1Q22 net profit was below our expectation at 21% of our full-year forecast
due to lower-than-expected non-interest income.
? We expect a qoq increase in 2Q22F net profit due to the positive impact from
OPR hike.
? Retain Add, given its above-industry loan growth, larger impact from OPR
hikes relative to other big-capped banks and enticing 5.6% dividend yield.
1Q22 below expectation due to weak non-interest income
RHB Bank’s 1QFY22 net profit was below expectations as it only accounted for 21% of our
full-year forecast and 22% of Bloomberg consensus estimate. The variance to our forecast
mainly came from lower-than-expected non-interest income, dented by losses from its
portfolio of fixed-income securities arising from the increase in bond yields.
1Q22 net profit brought down by lacklustre non-interest income
RHB Bank’s net profit slid by 7.7% yoy in 1Q22, dragged down by (1) 7.4% yoy drop in
non-interest income (due to adverse investment income) and (2) 35.6% yoy rise in tax
expense (lifted by Cukai Makmur taxation). 1Q22 net profit fell by 4.9% qoq, dented by a
78.2% qoq surge in LLP.
Expecting qoq improvement in 2Q22 net profit due to OPR hike
We expect higher net profit of RM620m-700m for RHB in 2Q22F (vs. RM600.3m in 1Q22)
as it will start to benefit from the OPR hike. However, this could still be lower than the net
profit of RM701.3m registered in 2Q21, which was the highest quarterly net profit in 2021.
Changes in net profit forecasts and target price
For our earnings forecasts, we factor in another OPR hike of 25bp (on top of the 25bp hike
we had factored in) but cut our projected FY22F non-interest income by 10.2% as we
assume lower investment income. This led to a 4.3% drop in our projected FY22F net profit
but 2.9% increase in our net profit forecasts for FY23-24F. For our DDM valuation, we raise
our assumed risk-free rate from 3.8% to 4% (due to the increase in interest rate) but lower
the discount to DDM value from 20% to 10% (given the easing Covid-19 credit risks).
Consequently, our target price is raised from RM7.00 to RM7.70.
Reiterate Add call on RHB Bank
We are not overly concerned about RHB Bank’s earnings miss in 1Q22 as this was caused
by adverse investment income arising from rising bond yield. As such, we continue to rate
the stock as an Add. Potential re-rating catalysts could come from wider expansion in net
interest margin relative to its peers in the event of OPR hikes and above-industry loan
growth. In fact, we see it as the biggest beneficiary of the OPR hike among the larger
banks. Its FY22F dividend yield is also attractive at 5.6%.