Malaysian Banks Screener; RHB Bank Is Our Top Pick

Malaysian Banks June 2022 Screener; CIMB Is Our New Value Pick

RHB Bank: 飲水思源 "When You Drink the Water, Remember the Spring"

Malaysia Banks – The Small, Nimble, Retail Banks Can Survive the Purge

Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Equity Bottom-Up

Malaysia was a standout at Q221 in terms of positive value-quality trends. Fundamental progression was strong at CIMB, Malaysia Building Society, Hong Leong, Malayan Banking, and RHB.According to our model PH Score™ and our VFM model, RHB especially catches our attention. RHB ranks in the top quartile globally of our VFM (Valuation, Fundamentals, Momentum) universe. On a LTM basis, the bank's PH Score™ of 9.0 reflects progression in Profitability, in NIM, in Efficiency, in headline Asset Quality, in Liquidity and in Provisioning as well as the reasonable valuation variable though Common Equity/Assets eroded somewhat in contrast to other key Capitalisation ratios.<div class="content-highlight">A FV of 10% and a PBV of 0.77x are not unattractive. The bank has an Earnings Yield of 11.6%, a Dividend Yield of 4.27%, and a Total Return Ratio of 1.1x.  </div>RHB dedicates itself to consumer (53.4% of credit) and corporate lending. The Retail segment includes an elevated exposure to mortgages. By Operating Income, the bank is balanced between Retail and CBIB/Business Banking and Treasury/Global Markets with some modest international activity. Time Deposits represent 70.7% of Deposits while Transaction Accounts contribute 22.5%. The bank takes in money &lt;1year and lends out at 5+ years for two-thirds of its loan book.Caveats. Malaysia faces continued pressure on its fiscal settings (as elsewhere) given its near-term economic outlook (reducing GDP forecasts) amid a worsened domestic C-19 situation and a still fluid political backdrop. Delayed economic recovery, repeated moratorium distortion and government intervention in earnings/operation risk eroding somewhat buffers built up before the pandemic. The proposed interest waiver to protect low-income borrowers is a risk to earnings forecasts moving forward amid a backdrop of a higher system NPL ratio (from 1.7% currently to perhaps 3% next year) and an estimated jump in Credit Costs of some 50bps.

Malaysia was a standout at Q221 in terms of positive value-quality trends. Fundamental progression was strong at CIMB, Malaysia Building Society, Hong Leong, Malayan Banking, and RHB.According to our model PH Score™ and our VFM model, RHB especially catches our attention. RHB ranks in the top quartile globally of our VFM (Valuation, Fundamentals, Momentum) universe. On a LTM basis, the bank's PH Score™ of 9.0 reflects progression in Profitability, in NIM, in Efficiency, in headline Asset Quality, in Liquidity and in Provisioning as well as the reasonable valuation variable though Common Equity/Assets eroded somewhat in contrast to other key Capitalisation ratios.A FV of 10% and a PBV of 0.77x are not unattractive. The bank has an Earnings Yield of 11.6%, a Dividend Yield of 4.27%, and a Total Return Ratio of 1.1x.  RHB dedicates itself to consumer (53.4% of credit) and corporate lending. The Retail segment includes an elevated exposure to mortgages. By Operating Income, the bank is balanced between Retail and CBIB/Business Banking and Treasury/Global Markets with some modest international activity. Time Deposits represent 70.7% of Deposits while Transaction Accounts contribute 22.5%. The bank takes in money &lt;1year and lends out at 5+ years for two-thirds of its loan book.Caveats. Malaysia faces continued pressure on its fiscal settings (as elsewhere) given its near-term economic outlook (reducing GDP forecasts) amid a worsened domestic C-19 situation and a still fluid political backdrop. Delayed economic recovery, repeated moratorium distortion and government intervention in earnings/operation risk eroding somewhat buffers built up before the pandemic. The proposed interest waiver to protect low-income borrowers is a risk to earnings forecasts moving forward amid a backdrop of a higher system NPL ratio (from 1.7% currently to perhaps 3% next year) and an estimated jump in Credit Costs of some 50bps.

RHB: A Standout Globally Within an Improving Value-Quality Market

RHB Bank Bhd

RHB: A Standout Globally Within an Improving Value-Quality Market