KUALA LUMPUR (March 10): RHB Bank Bhd’s (KL:RHBBANK) newly launched three-year corporate plan appears more ambitious than expected for the country’s fifth-largest bank at a time of high uncertainties, analysts said.
Meeting some of the targets also requires the bank to compete in the same arena as its larger and smaller rivals. The success of the ‘PROGRESS27’ strategy hinges on RHB Bank’s ability to deliver current-account-savings-account (CASA) growth and sustain its asset quality, said Phillip Capital in a note.
“Achieving above-industry CASA growth may be challenging, amid heightened competition and the appeal of higher-yielding alternatives,” the house warned.
Under the three-year plan unveiled on Feb 27, RHB Bank is targeting a return on equity of over 12%, a cost-to-income ratio below 44.8%, and a gross impaired loan ratio of less than 1.3% by 2027.
The mid-sized bank will focus on loan growth, CASA expansion, cost efficiencies, and regional profitability, while strengthening its wealth, small-and-medium enterprise (SME), and wholesale banking businesses. RHB Bank also seeks to expand in Singapore and Cambodia.
An increased exposure to higher-risk SMEs and overseas segments, however, could lead to earnings volatility, Phillip Capital warned.
For MIDF Amanah Investment Bank, PROGRESS27 appears mostly achievable, though the targeted 10% annual fee-based income growth seems overly optimistic.
“These targets are highly dependent on market conditions,” the house said. “However, current financial market performance is relatively poor.”
Further, any economic slowdown could hinder the 7% annual domestic loan growth target, the research house cautioned in a note.
Shares of RHB Bank have climbed more than 6% so far this year, following a stronger-than-expected earnings report, and analysts are still mostly bullish on the stock.
The stock has 15 ‘buy’ calls and three ‘hold’ calls from research houses, with no ‘sell’ recommendations. The 12-month target price stands at RM7.58, indicating a potential upside of 9.7% from its last traded price.
As of 10am on Monday, RHB Bank shares were up three sen or 0.44% at RM6.91, giving the bank a market valuation of nearly RM30 billion.