Date: October 1, 2024
Broker: UOB Kay Hian

Sector Overview

RHB Bank is highlighted in UOB Kay Hian’s October 1, 2024 report as one of the key banking sector picks in Malaysia. The report notes that loan growth in the overall banking sector slowed to 6.0% year-over-year in August 2024, down from 6.4% in July 2024, driven by weaker business loans. Despite this sector-wide deceleration, RHB Bank is seen as having strong potential for outperformance in the second half of 2024 due to its specific strengths.

Market Weight Recommendation

UOB Kay Hian maintains a MARKET WEIGHT stance on the overall Malaysian banking sector due to anticipated slower earnings growth in 2024/2025 compared to the broader market. However, RHB Bank stands out as one of the broker’s preferred picks in this context, offering a better risk-reward balance for investors.

Strong Growth Prospects

RHB Bank is positioned to outperform its peers in the second half of 2024, bolstered by its strong pre-provision operating profit growth of 13%. The report indicates that RHB Bank has benefited from stabilizing asset quality metrics and that its high beta makes it well-positioned to capitalize on any improvements in the broader economic environment.

Valuation and Recommendation

RHB Bank’s stock is given a BUY rating, with a target price of RM6.80 and a current share price of RM6.18. This attractive valuation highlights the bank’s potential for upside, particularly given its strong operational growth and stable asset quality. With a lower Price-to-Book (P/B) ratio relative to its historical average, RHB Bank is positioned as a favorable investment option.

Performance Metrics

RHB Bank’s earnings growth for 2024/2025 is expected to be robust, supported by strong operational performance. The bank’s Return on Equity (ROE) is projected at 8.7%, with a P/B ratio of 0.8x and a dividend yield of 6.0%, indicating a strong income-generating potential for investors. This makes RHB Bank one of the more attractive stocks in the Malaysian banking sector from both a valuation and performance perspective.

Asset Quality and Stability

RHB Bank has demonstrated stability in its asset quality, supported by sufficient pre-emptive provisions that have been accumulated over the past three years. These provisions serve as a buffer against potential short-term spikes in impaired loans, particularly in the face of global macroeconomic challenges. The report emphasizes that RHB Bank’s asset quality metrics have now stabilized, adding to the bank’s resilience in the current economic climate.

Conclusion
RHB Bank is poised for outperformance, driven by its strong operational growth, attractive valuation, and stable asset quality. With its robust pre-provision growth and favorable risk-reward balance, the bank is well-positioned to navigate the challenges facing the broader Malaysian banking sector and deliver solid returns for investors.