RHB Bank’s financial improvements could boost share price

This article first appeared in The Edge Financial Daily, on November 12, 2019.
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RHB Bank Bhd
(Nov 11, RM5.69)
Maintain add with an unchanged target price (TP) of RM7:
Last Friday, RHB Bank Bhd hosted a Group Retail Banking Day (GRBD) with its head of group retail banking, Rakesh Kaul. We are more positive on RHB Bank following the GRBD as we gathered that it has been gaining market share in the retail banking business and that it has launched various innovative retail banking products.

We are encouraged to note that RHB Bank gained a market share in retail banking loans during June 2018 to June 2019 — from 8.4% to 8.8% for total retail loans, from 9.3% to 9.7% for mortgages, from 5.3% to 5.4% for credit card receivables, from 10.9% to 11.6% for personal financing and from 5.1% to 5.2% for auto loans. Retail banking revenue grew by 10% in 2018 and we expect this to expand by 5-7% in financial year 2019–21 forecasts (FY19-21F).

RHB Bank is focusing on key geographical areas for its residential mortgages, due to the sustained property demand in these areas. For instance, 90% of its mortgages were for properties in three major areas — 71% for the Klang Valley, 12% for Johor and 7% for Penang. The average ticket size of its residential mortgages is RM420,000, signifying its focus on the lower end of the property market.

We believe RHB Bank could become a key digital banking player given its ability to develop various innovative products and services. These include: i) a multi-currency Visa debit card, which supports 13 currencies; ii) [email protected] which allows customers to apply for the opening of current accounts, savings accounts online; and iii) [email protected] Solutions, a seamless account opening system for companies.

The strong growth in its retail banking business is another testimony to the success of RHB Bank’s transformation programme, which is one of the key reasons for our “add” call on the stock. It also remains our top pick for the sector. An improved financial performance under the transformation programme could be a key rerating catalyst for the stock. Its valuations remain attractive with calendar year 2020 forecast price-earnings ratio of 8.4 times and price-to-book value ratio of 0.9 times, versus 11.5 times and 1.2 times respectively for the sector.

Our FY19-21 earnings per share forecasts and dividend discount model-based TP of RM7 remain unchanged. — CGS-CIMB Research, Nov 11