Investment Highlights

• We maintain our BUY call on RHB Bank with a revised fair value of RM6.60/share (from RM6.10/share) after rolling over our valuation to FY20. Our revised FV is based on FY20 ROE of 9.9% leading to P/BV of 1.0x. We tweak our FY19 net profits by -0.7% after adjusting our NIM assumption slightly lower.

• 1QFY19 earnings of RM630mil grew 6.7%YoY largely due to lower operating expenses (opex) and provisions for impairments despite a drop in total income by 1.5% YoY. Earnings were in line with expectations, making up 26.7% of our and 26.1% of consensus estimates respectively.

• Loan growth was decent at 5.5% YoY supported by expansion in mortgage, personal financing, SME and commercial loans.

• NIM slipped 4bps QoQ to 2.16% in 1QFY19 attributed to higher funding cost and the normalisation of deposit rates after the OPR hike last year. Deposit growth of 10.1% YoY outpaced loans while CASA growth remain subdued. The latter was impacted by the decline in corporate CASA in Malaysia and a contraction in Singapore which eased the group’s CASA ratio further to 24.5%.

• Opex fell by 1.9% YoY in 1QFY19 due to lower personnel and IT expenses. This has resulted in a positive JAW of 0.4%. 1QFY19 CI ratio of 48.6% was in line with our estimate of 49.0 for FY19.

• Impaired loans rose by 3.4% QoQ to RM3.6bil arising from higher impairments of loans to the agricultural, manufacturing, construction and the transportation sectors. The group has proactively restructured and rescheduled (R&R) several loan accounts. This has resulted in an uptick in the group GIL ratio to 2.12%. Annualised credit cost (loans, financial assets and investments) of 0.17% in 1QFY19 was within our estimate 0.20%. Potentially, the R&R loans could be reclassified to performing status by the end of FY19, and these could lower its GIL ratio.

• Group and bank entity CET1 ratios were 15.7% and 13.6% respectively. RHB Islamic Bank’s CET1 and Tier 1 capital ratios both fell to 12.7% (-50bps QoQ) while its total capital ratio declined to 15.9% (-60bps QoQ). This was caused by the migration of the banking entity to an IRB bank resulting in additional RWA of RM6.3bil due to the capital floor imposed by BNM. This requirement is to ensure the robustness of its modelling as an IRB bank.

Source: AmInvest Research - 28 May 2019