How to Interpret RHB BANK 's Q1 Earnings?
Performance Overview: Revenue Growth, Net Profit Decline YoY
RHB Bank Berhad has released its financial results for the first quarter of 2024, highlighting both positive growth and some challenges. The bank's total income increased by 9.5% year-over-year (YoY) and 3.2% quarter-over-quarter (QoQ), reaching MYR 2.09 billion. This growth was primarily driven by higher net fund income and non-fund income. Notably, non-fund income surged by 31.6% to MYR 700 million.
The net profit for the quarter stood at MYR 730 million, marking a 4.1% decrease YoY, yet a 24.6% increase QoQ. This resulted in a return on equity (ROE) of 9.2%, slightly lower than the 9.5% recorded in FY2023.
Performance Across Business Segments
1.Key operating highlights
The strong revenue performance was attributable to growth across various business segments. As of March 2024, retail loans and mortgages loans grew by 1.4% and 2.1%, respectively. The bank's strategy to become the preferred bank for everyone has been effective, reflected in a 2.6% increase in reflex numbers.
The share of Islamic domestic financing remained strong at 44.3%, consistent with the previous year. Loans in Singapore also showed robust growth, increasing by 4.8% year-on-year as of March 2024.
2.Netfund-based income and NIM
Net fund-based income grew by 0.9% year-on-year for Q1 2023 and increased by 3.1% quarter-over-quarter, indicating stable performance.
The net interest margin (NIM) increased from 1.77% in the previous quarter to 1.83%, benefiting from the easing of funding cost pressures and continued opportunities for liability management initiatives. However, it has declined compared to 1.90% in the same quarter last year.
3.Non-fund based income growth greatly
Non-fund based income grew by 31.6% year-on-year for Q1 2023, driven by higher fee income and net trading and investment income.
Rising Expenses Partly Affected Profits
Operating expenses increased by 12.0% to RM1.0 billion, primarily due to higher personnel, IT, and marketing costs. The cost-to-income ratio (CIR) rose compared to 44.9% in the same quarter last year, but decreased compared to 48.5% in the previous quarter. Additionally, the CIR remained below the overall level of 47.5% seen in 2023.
Noteworthy Asset-Liability Changes
1.Total Asset：In Q1 2024, RHB Bank's total assets slightly increased by 0.2% QoQ to RM329.3 billion, with securities portfolio QoQ growth of 2.7% driving this rise.
2.Gross Loans:Gross loans also rose by 1.1% QoQ to RM224.9 billion, supported by growth in both domestic and overseas segments.Customer deposits dipped by QoQ 0.9% to RM242.9 billion, yet the CASA ratio improved to 29.0%, indicating a positive shift towards lower-cost funds.
3.LCR&LDR:The bank's liquidity coverage ratio (LCR) declined to 144.4% from 177.4% in the previous quarter, but remains ample and compliant with regulatory standards.The loan-to-deposit ratio (LDR) saw a minor improvement to 92.6%, reflecting a more balanced approach to asset-liability management.
Proactive Asset Quality Management to Address Risks
Asset quality at RHB Bank Berhad is a critical indicator of its financial health. In Q1 2024, the bank's gross impaired loans ratio (GIL) stood at 1.83%, a slight increase from the previous year's 1.74%. This suggests a modest uptick in non-performing loans but still within manageable limits.
The bank has been proactive in managing credit risk, as evidenced by the credit cost which increased to 0.25% from 0.16% in FY2023. This higher provision for credit losses reflects a cautious approach to potential loan defaults in a challenging economic environment.
The loan loss coverage ratio (LLC), excluding regulatory reserves, was 70.1%, a slight decrease from 71.7% in the previous year. When including regulatory reserves, the LLC improved slightly to 106.3% from 106.2%, indicating that the bank has a buffer in place to cover potential loan losses.
The bank's stage 2 loans ratio decreased to 4.92% from 5.18% in the previous period, indicating an improvement in the quality of loans that are under closer monitoring but not yet impaired.
Focus on Shareholder Returns with Consistent Dividends
No dividend and share buy-backs have been declared for the first quarter ended 31 March 2024. Historically, the company has maintained a consistent dividend distribution practice. The current dividend yield TTM is 7.3%.
Previous dividend: The Board of Directors has declared a second interim single-tier dividend of 25.0 sen per share for the financial year ending 31 December 2023, totaling RM1,071,587,000, with a cash portion of 15.0 sen per share and an electable portion of 10.0 sen per share under the Bank's Dividend Reinvestment Plan (DRP).
Group Equity Structure Adjustment & Subsidiary Capital Injection
For the three months ending 31 March 2024, the Group had the following notable changes:
1.Boost Bank Shares:Boost Bank is very close to being launched to the Malaysian public. The Company maintained its 40% equity interest by subscribing to additional shares: 8.6 million shares on 16 February 2024 and 3.4 million shares on 15 March 2024. The paid-up capital of Boost Bank as at 31 March 2024 is approximately RM215.0 million, comprising approximately 215.0 million Boost Bank Shares.
2.RHB Bank (L) Ltd (RHBBL):On 20 February 2024, the Bank injected USD25 million (RM120 million) into its subsidiary RHBBL, increasing its share capital from USD54 million to USD79 million.
3.RHBAssetManagement (RHBAM):In February 2024, RHBAM gained control of RHB GoldenLife 2030 (RGL3) and consolidated it as an indirect subsidiary with a 52.79% equity interest.
Growing Amidst Risks and Opportunities
In 2024, Malaysia's economy is expected to benefit from stronger external demand, manufacturing activities, and resilient domestic demand driven by increased consumer and investment spending. However, risks such as prolonged high interest rates in advanced economies and geopolitical conflicts remain.
The banking sector is projected to see healthy loan growth, supported by robust capital and liquidity positions and strong provisioning levels.
The Group will focus on business growth, cost discipline, and maintaining a prudent approach, aiming for quality growth, service excellence, and improved efficiency through its TWP24 strategy.
There were no profit forecast or profit guarantee issued by the Group and the Bank.
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104087180 : thanks. nice analysis