Investment Highlights

• We maintain our BUY call on RHB Bank with an unchanged fair value of RM6.30/share. Our FV is based on FY19 ROE of 10.0% leading to a P/BV of 1.0x. We make no changes to our estimates.

• We met Group CFO Syed Ahmad Taufik Albar for updates recently. We gather that deposit competition is still intense as banks are complying with the NSFR despite no formal deadline has been set for its implementation. Deposit campaigns are still ongoing to keep customer funds from moving to competitors.

• Management guided for the FY19 NIM to be compressed by 3–5bps from 4QFY18 to around 2.17%. This is due to the compression in asset yields and higher funding cost. Rates for mortgage and SME loans remain competitive. Potentially, the group could increase its base rate (BR) just like other banks namely, Hong Leong Bank, CIMB and BIMB to alleviate the pressure on cost of funds. Hong Leong Bank raised its BR by 10bps in Jan 2019 while CIMB and BIMB increased their rates by 10bps and 13bps in Dec and Nov 2018 respectively. We expect any increase in RHB’s BR to potentially lead to a lower NIM compression than the guidance given by management.

• On loans, the pipeline for mortgage loans is still strong. The group achieved double-digit growth for mortgages in FY18. As for corporate loans, the group is expecting positive growth in FY19 from a contraction in FY18. The existing pipeline and a modest growth in corporate financing are anticipated to offset some scheduled repayments in FY19. Loans to real estate developers make up 5.2% of its total loans (residential property: 1.8% and commercial property: 3.4%). On a comforting note, the margin of advance is low at 60–70%, and loans to real estate developers are well secured. Meanwhile, Islamic banking is still strong, and the group is targeting a growth in the mid-teens in FY19.

• RHB Singapore’s focus is on retail and business banking. Affluent/mass affluent/SME businesses are priority segments in Singapore.

• We understand that for oil & gas loans, provisions have already been mostly provided for. Meanwhile, GIL ratio for real estate loans stood at 3.3%, and the group remains cautious on the sector.

Source: AmInvest Research - 12 Mar 2019