Investment Highlights

• We maintain our BUY call on RHB Bank with a revised fair value of RM6.20/share (from RM6.10/share). Our FV is based on a higher FY19 ROE of 8.8% (previously 8.7%) leading to an unchanged P/BV of 0.9x. We tweak our FY18/19/20 net profit upwards by 6.0%/1.6%/1.6% after adjusting our cost estimate for FY18 to 0.20% (from 0.25%) and raising our projections for Islamic banking income.

• The group recorded an improved net profit of RM579mil (+1.5%QoQ) in 3QFY18. 9MFY18 earnings of RM1.74bil grew 16.8%YoY largely due to a higher net fund and non-fund based income as well as lower provisions for credit losses. Cumulative net profit was within expectations, making up 80.8% of our and 80.6% of consensus estimates respectively.

• The group’s loans growth grew at a faster pace of 1.8%QoQ or 4.0%YoY in 3QFY18. Loan growth continued to be driven mainly by the expansion in mortgage and SME loans. Personal financing also expanded strongly while momentum for loans in Singapore remained slow.

• NIM contracted marginally by 6bps QoQ to 2.23% in 3QFY18 due to higher funding cost from repricing of deposits. YTD CASA growth remained slow contributed by contractions of corporate deposits and the deliberate strategy to relinquish some CASA in Singapore following the slow pace of loans.

• Opex rose by 3.1%QoQ in 3QFY18 due to expenses for digital initiatives and the implementation of its AGILE strategy. Opex was lower in 2QFY18 due to a reversal in provision for bonuses. 9MFY18 saw positive JAW of 1.1% despite a higher opex of 6.4%YoY from a rise in IT and personal expenses as total income grew 7.5%YoY. This led to an improved CI ratio of 49.0% which was in line with our estimate for FY18.

• Impaired loans balance rose by 3.6%QoQ to RM3.89bil. The overall group’s GIL ratio increased slightly to 2.37% in 3QFY18 from 2.33% in 2QFY18. This was due to the debt restructuring related to the oil & gas sector’s conversion of a bond to loan.

• 9MFY18 credit cost of 0.20% was an improvement over 9MFY17’s 0.26% largely due to lower provisions in Singapore. The decline in provisions has boosted the Singapore operations back into the black for 9MFY18.

• Capital ratios remained healthy with a comfortable group and bank entity CET1 ratios of 14.8% and 12.7% respectively.

Source: AmInvest Research - 28 Nov 2018