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Analysts cautiously optimistic on RHB despite steep drop in NIM
Published on: Monday, May 29, 2023
By: FMT Business
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Analysts cautiously optimistic on RHB despite steep drop in NIM
RHB Banks remains positioned as a leading dividend yield candidate with yields averaging above 7% at current price levels, says Kenanga Investment Bank.
PETALING JAYA: RHB Bank Bhd saw its net interest margin (NIM) fall sharply by 46 basis points to 1.9% from 2.36% compared to the preceding quarter, and this has raised some concern among research analysts.

The NIM reveals the amount of money that a bank is earning in interest on loans compared to the amount it is paying in interest on deposits, and acts as an indicator of profitability and growth.

MIDF Investment Bank analyst Samuel Woo highlighted that the drop was expected, but more acute than many of RHB’s peers.

For comparison, Maybank saw its NIM compressed by 20 basis points to 2.19%, whilst Public Bank Bhd saw a drop by 32 basis points to 2.26%.

“Other banking players have soaked up liquidity over the quarter, in anticipation of possible funding issues,” said Woo.

“In contrast, RHB seems to have fallen behind on this front – while we could see slower loan growth as a result, we opine that RHB could draw from its huge capital reserves to buffer itself from the worst,” he added.

Despite this weakness, analysts are overall optimistic about RHB’s prospects.

Woo’s verdict is that there is a positive risk reward to the counter, with a high chance of elevated dividend payout at the end of the year.

Kenanga Investment Bank analyst Clement Chua added that non-interest income surged 33% as treasury income enjoyed fair value gains from losses in prior years, offsetting the decline in fee-based income.

“(However) substantial catch-up is required to meet the group’s initial 2.22%-2.25% NIM target,” said Chua.

Nevertheless, RHB remains positioned as a leading dividend yield candidate with yields averaging above 7% at current price levels.

This could be further lifted should the group decide to release its hefty common equity tier 1 (CET1) portfolio – which contains the highest quality capital – to reward shareholders.

“The stock will still likely be monitored closely due to its tie-in with Axiata-Boost in relation to the upcoming launch of a new digital bank in the near future,” said Chua.

Chua maintained an “outperform” call on the stock, with a target price (TP) of RM7.10.

Meanwhile, Woo also retained a “buy” call on RHB, with a revised TP of RM7.58 from RM6.74 previously.

At mid-day break, RHB’s share price was down 0.18% or 1 sen to RM5.45, giving it a market capitalisation of RM23.36 billion.

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