KUALA LUMPUR (Aug 30): Analysts are less bullish on RHB Bank Bhd’s prospects after its second quarter (2QFY2023) results came in below expectations, prompting cuts in earning forecast and target price (TP).

Maybank Investment Bank, in a research note on Wednesday, said RHB’s earnings were buoyed by substantial credit cost writeback during the quarter.

“There was a net writeback of provisions in 2Q2023, with all of its Covid-related provisions having been written back or re-assigned. The group nevertheless still has about RM557 million of management overlays that it could potentially still write back,” said Maybank Investment.

It slashed RHB's FY2023-25 earnings forecast by 6%-7% and downgraded its rating on the stock to "hold".

“Our valuations are rolled forward to FY2024 and our TP is lowered by 20 sen to RM6.20 on an unchanged PBV (price to book value ratio) of 0.9x (FY2024E return on earnings or ROE: 9.1%). Dividend yields of >6% provide support,” Maybank Investment said.

Hong Leong Investment Bank (HLIB) said it is concerned about RHB’s loan loss coverage of 83% which is on par to pre-pandemic level of 85%, but lower than peers.

“We are slightly worried on its relatively low loan loss coverage of 83% (despite management is expecting some loan rehabilitation in the next three-six months) as buffers have thinned and, in our opinion, difficult to cushion any short-term increase in gross impaired loan (GIL) ratio that may potentially stem from macro headwinds and tight monetary policy,” HLIB said in a note.

HLIB cut RHB's FY2023-25 earnings by 9-10% following the downward revision in its net interest margin (NIM) guidance.

The research outfit downgraded RHB to "hold" with a lower TP of RM6.00 from RM6.60, based on 0.81x FY2024 P/B.

MIDF Research in a note said although RHB recorded a decent quarter, a lot of it is propped up by its overlay writebacks.

“Honestly, we were expecting a much stronger recovery. Decent improvement in fee income and forex gains on a sequential-quarter basis,” the MIDF Research.

The research house added that RHB’s year-to-date loan growth has also been lacklustre so far, regardless of the management's confidence in its 2HFY2023 report.

MIDF added that while RHB is expecting a softer 2HFY2023 in terms of operating expenditure, a muted NIM outlook coupled with higher provision costs may prevent the bank from achieving its FY2023 target.

It maintained a "buy" call with a revised TP of RM6.66.

CGS-CIMB Securities in a note said that the potential re-rating catalyst for RHB stock would be an increase in dividend payout ratio, given its strong common equity tier-1 capital ratio of 17.1% as at end-June 2023.

“This, coupled with our expected recovery in net interest income growth in FY2024F, underpins our ‘add’ call on RHB, which is our top pick for the sector,” CGS-CIMB said.

RHB’s FY2023 dividend yield of 6.5% is the highest in the sector, and yet, it is trading at an attractive CY24F P/E of 7.1x (vs. the sector’s 9.5x), the securities firm said.

CGS-CIMB further said that the potential downside risks for RHB would be a deterioration in loan growth and asset quality.

It cut RHB’s TP from RM7.62 to RM6.56.