Broker: Maybank Investment Bank Berhad
Date of Report: May 29, 2025

RHB Bank 1Q25 Results: Downgrade to HOLD Amid Economic Headwinds and Lower Earnings Outlook

Overview: RHB Bank’s 1Q25 Earnings Miss Expectations

RHB Bank’s first-quarter 2025 results have come in below expectations, prompting Maybank Investment Bank to downgrade its rating from BUY to HOLD. The underperformance is primarily attributed to weaker-than-expected non-interest income (NOII) and a cautious economic outlook for Malaysia. The price target has been revised down to MYR7.10, with limited upside from the current share price of MYR6.67. Despite these challenges, RHB’s attractive dividend yield, exceeding 6%, offers some solace for income-focused investors.

Key Highlights & Investment Thesis

• Core Net Profit: 1Q25 core net profit stood at MYR750 million, up 3% year-on-year but down 10% quarter-on-quarter. This represents just 23% of both Maybank’s and consensus full-year forecasts.
• Loan Growth: Robust at 6.3% YoY, with retail loans up 8.0% and wholesale banking loans soaring 11.7% YoY. However, SME loan growth lagged at just 0.8% YoY.
• Net Interest Margin (NIM): Stable QoQ at 1.84%.
• NOII: Declined 20% YoY on weaker investment income and negative JAWS.
• Credit Cost: Provided support to earnings, coming in lower than expected.
• Management Guidance: Loan growth target for FY25 has been trimmed to 5-6% (from 6-7%), reflecting slower economic growth forecasts.
• Dividend: Yields remain attractive at above 6%.

Malaysia: Lowered GDP and Monetary Policy Outlook

Maybank’s Economics Team has revised Malaysia’s GDP growth forecasts downward for both 2025 and 2026:

• 2025 GDP Growth: Lowered from 4.9% to 4.1%.
• 2026 GDP Growth: Lowered from 4.6% to 4.0%.
• Interest Rate Outlook: Possibility of a 25bps rate cut, with the Overnight Policy Rate potentially dropping to 2.75% from 3.00%.

Revised Economic Assumptions Table

Financial Forecasts Trimmed: Lower Growth, Higher Credit Cost

Maybank has adjusted several key forecasts for RHB Bank to reflect the challenging environment:

• Loan growth cut by 0.5-1% point for FY25 and FY26
• NIM impact: -2bps in both FY25 and FY26
• Credit cost increased by 20% to 24bps
• NOII estimates lowered
• Net profit forecasts for FY25/FY26 reduced by 9%/8% respectively

Key Financial Assumptions Table

Valuation: Target Price Lowered to MYR7.10

The target price for RHB Bank has been revised down from MYR7.70 to MYR7.10, reflecting a more conservative outlook:

• FY25 PBV: 0.9x (previously 1.0x)
• Cost of Equity (COE): 9.6% (from 9.9%)
• ROE: 9.2% (from 10%)
• Long-term growth: 4%

Company Snapshot: RHB Bank

RHB Bank is a leading Malaysian financial services group, offering a wide range of products including commercial banking, Islamic banking, investment banking, and stockbroking.
Key Statistics:

• Share Price: MYR6.67
• 12m Target Price: MYR7.10 (+6%)
• 52w High/Low (MYR): 7.00 / 5.48
• Market Capitalisation: MYR29.1B (USD6.9B)
• Major Shareholders:
  • Employees Provident Fund: 38.8%
  • OSK Holdings Bhd.: 10.3%
  • Permodalan Nasional Bhd.: 6.2%
• Free Float: 48.7%
• Issued Shares: 4,359 million

Historical Price Performance:

• 1 Month: 0% (absolute and relative)
• 3 Months: -3% (absolute), 0% (relative)
• 12 Months: +21% (absolute), +28% (relative)

Financial Performance: Income Statement & Balance Sheet

Summary Financials (MYR million):

Quarterly Performance and Segmental Analysis

1Q25 Key Figures:

• Interest income: MYR2,510.2m (+0.9% YoY)
• Net interest income: MYR969.8m (+4.7% YoY)
• Islamic banking income: MYR557.5m (-15.3% YoY)
• Non-interest income: MYR520.3m (+3.2% YoY)
• Operating expenses: MYR970.7m (+1.2% YoY)
• Loan loss provisions: MYR105.8m (-50.8% YoY)
• Pretax profit: MYR962.7m (+5.8% YoY)
• Net profit: MYR750.0m (+2.7% YoY, -10.1% QoQ)
• Cost-to-income ratio: 47.4% (higher YoY)
• Tax rate: 22.0% (higher YoY)

Balance Sheet (as at Mar 2025):

• Gross loans & advances: MYR239,158m (+6.3% YoY, +0.6% QoQ)
• Deposits from customers: MYR280,365m (+15.2% YoY, +11.8% QoQ)
• Gross LDR: 85.3% (declined YoY and QoQ)
• Gross impaired loans: MYR3,580.3m (down 13.0% YoY, up 2.7% QoQ)
• Gross impaired loans ratio: 1.5% (flat QoQ, down YoY)
• Loan loss coverage: 76.9% (up YoY, down QoQ)

Business Segment Insights

Loan Growth:

• Retail loans up 8.0% YoY; mortgages +8.5% YoY, auto financing +10.9% YoY
• Commercial property loans down 6.2% YoY; ASB (Amanah Saham Bumiputera) financing up 4.6% YoY
• Wholesale banking loans up 11.7% YoY
• SME loans up a modest 0.8% YoY
• Overseas loans contracted 2.5% YoY (Singapore flat, other countries -17.1% YoY)
• Loans with US exposure: less than 4% of total portfolio
• Full provisioning on a domestic O&G sector corporate loan of MYR740m

Deposit Growth & Liquidity:

• Total deposits up 2.3% YoY
• Loan/deposit ratio climbed to 96.2% (from 95.3% end-2024)
• CASA (Current Account Savings Account) contracted 1.1% due to a 16.2% drop in wholesale CASA; retail CASA up 6.6%
• Overseas CASA grew 9.1%
• Group CASA ratio: 28.0%; domestic CASA: 28.7%

Net Interest Margin (NIM):

• Stable at 1.84% QoQ; domestic NIM rose to 1.86%; Singapore NIM fell by 3bps
• Management maintains 2025 NIM target of 1.86-1.90%
• Reduction in SRR (Statutory Reserve Requirement) expected to boost NIM by 2-3bps

Non-Interest Income (NOII):

• Total NOII dropped 20% YoY in 1Q25
• Fee income stable (+1.1% YoY), but treasury income down 34.7% and insurance income down 23%
• Management sees potential in unlocking MTM gains from FVOCI investments in coming quarters

Operating Expenses:

• Flat at +1.2% YoY; personnel costs down 0.5%, admin expenses down 6.9%
• Cost/income ratio increased to 47.4%, above management’s 45.5-46% target

Asset Quality:

• Group GIL (Gross Impaired Loans) ratio edged up to 1.50%, at the top end of the 1.4-1.5% target
• Domestic GIL at 1.22% (from 1.19%); higher mortgage and SME GIL ratios
• Regional GILs: Singapore 0.85%, Thailand 36.21%, Cambodia 12.53%
• Credit cost at 17bps in 1Q25, within target range (15-20bps)
• Loan loss coverage at 76.9%, or 115.7% including regulatory reserves
• Outstanding management overlays: MYR317m

Capital Position:

• CET1 ratio at 16.0% as of Mar 2025
• Basel IV implementation expected to have a 70-80bps negative impact on RWA

Risk Factors

• As Malaysia’s fourth-largest bank by assets, RHB is sensitive to domestic economic slowdowns, which could further pressure earnings and asset quality.
• Volatility in the Oil & Gas sector remains a potential risk for asset quality, especially for exposures in Malaysia and Singapore.

Valuation Metrics and Peer Comparison

One-Year Forward Rolling Valuation Multiples:

• PER (Price/Earnings Ratio): Mean 9.2x, range 7.8x to 10.6x over the past decade
• P/BV (Price/Book Value): Mean 1.0x, range 0.8x to 1.2x over the past decade

Key Financial Ratios:

• Net interest margin: 1.86% (FY25E)
• Cost/income: 47.7% (FY25E)
• Loan loss coverage: 101.3% (FY25E)
• CET1 ratio: 16.4% (FY25E)
• ROAE: 9.2% (FY25E)
• Net dividend yield: 6.4% (FY25E)

Conclusion: HOLD Recommendation with Attractive Yield but Limited Growth

RHB Bank faces a challenging year ahead, with economic headwinds dampening growth prospects and compressing margins. Management’s proactive stance in lowering growth targets and provisioning for credit risk is prudent. However, the muted outlook for non-interest income and a higher cost base weigh on earnings momentum. With the share price already offering a compelling dividend yield and limited upside to the revised target price, the stock is rated HOLD.
Investors seeking stable income may still find RHB Bank’s yield attractive, but the risk-reward profile is balanced by near-term earnings risks and subdued economic growth expectations.

Contact Information

For further research and inquiries, reach out to Maybank Investment Bank Berhad or its regional offices as listed in the report.

Disclosure and Disclaimer

This article is for informational purposes only. Investors are encouraged to consult professional advisors and review the full terms, disclaimers, and disclosures as provided by Maybank Investment Bank Berhad.