PNB and EPF do not need to pump up RHB Bank and Maybank. They would spike by themselves should PH+BN still win more than 2/3 majority in the three states that were under PH control prior to the dissolution of the state assemblies.
CIMB Bank's share price looks set to catch up with or even surpass RHB Bank's share price. At one stage several months ago, RHB Bank was 50 sen higher. While CIMB has staged a strong recovery from its recent lows by shooting up over 80 sen, RHB Bank has only gone up by less than 40 sen.
The headline shows record quarterly revenue and profit.
However, look closer at the income statement. Group operating profit before allowances for 2Q was RM936m (declined 10.9% YoY from RM1,051m a year ago). On 6M basis, it was RM1,987m (declined 4.1% from RM2,073m a year ago)
The record profit was helped by two key factors. 1. Write back of management overlay on credit losses. 2Q writeback is RM132m, versus a charge of RM39m a year ago. On 6M basis, it was positive RM85m versus negative RM192m a year ago 2. The absence of prosperity tax. On 6M basis, tax and zakat was only RM496m (versus RM668m a year ago), or effective tax rate of 24% (versus 36% a year ago)
Several analysts have turned cautious towards RHB. They've cut FY23-25 earning forecasts by 9-10% (HLIB), by 10-11% (CIMB), by 5% to 7% (MIDF). As a result, their TPs have been cut back - RM6 from RM6.6 (HLIB), RM6.56 from RM7.62 (CIMB), RM6.66 from RM7.58 (MIDF)
The reasons cited by HLIB -- NIM compressed, loans growth lost traction, and GIL ratio nudged up. LLC has gone down to 83%.
CIMB mentioned RHB Bank missed (albeit marginally) all of its FY23F KPIs: 1. ROE of at least 11% (achieved 10.6%) 2. Loan growth of 4-5% (achieved 1.9% in 1H23) 3. CASA of 30% (achieved 27.6%) 4. GIL of 1.5% or lower (1.64% as at end-Jun 23) 5. Cost-to-income ratio of 44.6% or below (achieved 47.5%)
But CIMB did mention that a higher dividend payout (given its strong CET1 ratio of 17.1%) could be a re-rating catalyst.
If you buy RHB because of its dividends, you should be contented because RHB still maintains its dividend. You've achieved your objective.
But if you buy RHB because you expect its dividend yield will help attract more investors, thereby pushing up share price so that you may exit with a handsome capital gain, well, it has not worked out that way, not yet. Such an expectation means you depend on the market to come to your view. However currently the market doesn't just look at dividends, but also factors like growth, asset quality and others.
Mediocre Banking Sector Results: NIM And NOII Centre Of Discussion By Editor - September 10, 2023
The banking sector saw a mediocre season with earnings entirely within expectations, this is despite some surprises in tailwinds and headwinds. NIM compression this time was a lot heavier than previously guided for (recall that banks were guiding for “stable-to-minor” compression in 1Q23). NOII improvement was expected, being guided for as a core earnings driver (which came true, but it was unevenly distributed).
MIDF analysts give their guidance for the sector and it’s more skewed towards the negative, largely due to the slower-than-expected NIM recovery and potential asset quality irritation. Nearly all banks revised their NIM guidance downward.
However, on a more positive note, future quarters may see possible positive revisions to NCC guidance (they were initially too conservative). Earnings: Relatively stable, NIM and NOII are central focus. Aggregate Core Net Profit (Core NP) up by +0.6%qoq. It was a good quarter for topline – despite NIM compression, NII largely remained stable to slightly negative while NOII did mostly see solid improvement, mostly on the side of treasury income (though in some cases disappointed).
Provisioning did pick up from last quarter’s softer activity, with a few banks amping up on credit costs for a poorer macroeconomic outlook and asset quality irritation. There was a minor issue of slightly elevated tax rates in the quarter, due to higher provisioning and investment-related gains that are less tax deductible.
As for the balance sheet, growth was poor but expected to pick up. Weaker corporate loan growth offered downside pressure. Retail contributions – particularly solid mortgage and hire purchase growth – were bolstered by strong unsecured loan offerings. Unfortunately, this was not enough to offset weaker growth coming from the non-retail side – though the industry has guided for a much healthier post-election pipeline in 2H, maintaining their far-from-target loan growth forecasts. Deposit growth was more mixed, but liquidity remains ample.
CASA attrition on the other hand took a light breather as pricier FDs matured without renewal but should resume in subsequent quarters. Different banks took different approaches to managing NIM optimisation, hence reporting varying quarterly deposit growth figures.
Increasing impairment pressure within certain brackets, but heavy write-offs keep GILs manageable. Asset quality pressure mainly came from the residential mortgages and SMEs linked to RA loans, though there was some irritation already coming from riskier overseas and unsecured segments. Few banks have guided that GIL ratio is close to peaking (or has already peaked). While LLC values have come down, some banks are looking at chunkier recoveries in the coming quarters to keep this manageable while refraining from making larger allocations.
Among the banks, Maybank saw an unexpected, massive non-fee income gain within the quarter, CIMB displayed exceptional performances in almost all aspects, especially loan growth. But Affin saw an abnormally sharp sequential drop in NIMs, which dragged earnings. RHB brought in decent quarterly earnings, but this was largely driven by overlay writebacks – while everything else was lacklustre.
From a pure valuation perspective, BIMB remains the most attractive while Affin is the least. Moving forward, the house is neutral for 2H outlook and doubts that ROE outlook is going to be that much better than 1H. Loan growth outlook is positive – banks are very optimistic about 2H’s non-retail pipeline. NIM outlook is more neutral – i.e. most banks are guiding stable to positive movement, though MIDF is cautious of year-end deposit competition.
On the other hand, more banks are opting for full-cash dividends. BNM doesn’t seem likely to exercise any additional leniency in capital ratio levels soon. Regardless, several banks have already guided for higher dividend payouts and halting DRP programmes – signalling that they are happy with current CET1 levels.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....