Investment Highlights

• We maintain our BUY call on RHB Bank with a revised fair value of RM6.30/share (from RM6.20/share). Our FV is based on a higher FY19 ROE of 10.0% (previously 9.4%) leading to P/BV of 1.0x. We tweak our FY19/20 net profits upwards by 4.6%/7.6% after adjusting our credit cost estimates lower to 0.20% from 0.23%.

• The group recorded a lower net profit of RM565mil (- 2.3%QoQ) in 4QFY18. A modest total income growth was offset by higher operating expenses and allowances for loan impairment.

• 12MFY18 earnings of RM2.3bil grew 18.2%YoY largely due to higher net fund and non-fund based income as well as lower provisions for credit losses. Cumulative earnings were within expectations making up 101.2% of our and 103.6% of consensus estimates respectively.

• The group’s loans accelerated in 4QFY18 to 5.5%YoY driven mainly by expansion in mortgage, personal financing, SME and commercial loans.

• NIM contracted by 3bps QoQ to 2.20% in 4QFY18. Deposit growth of 7.2%YoY outpaced loans while CASA growth remained slow due to the slowdown in Singapore and Malaysia. CASA ratio was lower at 25.9%.

• Opex rose by 5.4%YoY in 12MFY18 due to higher personnel and IT expenses. 12MFY18 saw positive JAW of 1.2%. This led to an improved CI ratio of 49.3% which was in line with our estimate.

• Impaired loans balance declined by 10.5%QoQ to RM3.5bil. The overall group’s GIL ratio fell to 2.06% arising from the reclassification of certain impaired loans which were restructured and rescheduled earlier to performing status as well as recoveries.

• 12MFY18 credit cost of 0.19% was an improvement over 12MFY17’s 0.26% with a lower provisioning for Singapore operations. It was within our estimate 0.20%.

• Capital ratios remained healthy with a comfortable group and bank entity CET1 ratios of 15.5% and 13.3% respectively.

• The group declared a final dividend of 13 sen/share. This brings the full FY18 dividends to 20.5 sen/share, a payout of 35.7% the highest in recent years. It was higher than our estimate of 17.5 sen/share. The group will now pay out at least 30.0% of its net profit as dividends compared with 20–30% previously.

Source: AmInvest Research - 28 Feb 2019