We maintain our BUY call on RHB Bank with a revised fair value of RM6.50/share from RM6.60/share. Our revised FV is based on a lower FY20 ROE of 9.8% (previously 9.9%) leading to a P/BV of 1.0x. We trim our FY19/20/21 earnings by 0.7%/2.6%/2.6% to RM2.32bil/RM2.49bil/RM2.69bil after factoring in another OPR cut of 25bps in 2H19 and raise our NOII estimate for FY19.
2Q19 earnings of RM615mil were marginally lower by 2.3% QoQ due to higher operating expenses (opex) and lower write-back in allowances for other financial assets. Net profit for 6M19 of RM1.25bil grew 7.3% YoY driven by higher total income and lower provisions. 6M19 earnings were within with expectations, at 53.2% of our and 51.9% of consensus estimates respectively.
Loan growth accelerated to 6.8% YoY in 2Q19 (1Q19: 5.5% YoY) supported by expansion in mortgage, SME, corporate and loans in Singapore.
2Q19 NIM declined 7bps QoQ to 2.09%. On a YTD basis, NIM contracted by 13bps to 2.11% due to higher funding cost as well as the impact of May 2019’s OPR cut of 25bps.
Deposit growth continued to outpace loans while group CASA growth improved to 2.2% YoY, lifting the CASA ratio to 26.6% in 2Q19 from 24.5% in 1Q19.
Opex rose by 2.8% YoY in 6M19 due to rise in personnel, IT and marketing expenses. The group recorded a positive JAW of 1.2%. 6M19 CI ratio of 48.5% was in line with our estimate of 49.0 for FY19.
2Q19 saw impaired loans rising by RM97mil or 2.7% QoQ to RM3.7bil. This was contributed by the impairment of a large corporate loans related to the utility sector in Singapore which was backed by cash flows as well as upticks in impairment of loans to the agricultural sector. We understand that the group has proactively restructured and rescheduled (R&R) these loan accounts resulting in an increase in the group’s GIL ratio to 2.15% in 2Q19 (1Q19: 2.12%). 6M19 credit cost was 0.20% (6M18: 0.22%), in line with our estimate.
An interim dividend of 12.5 sen/share (payout: 40.2%) for 6M19 has been proposed, higher than the 7.5 sen/share (payout: 25.9%) in 6M18.
Group and bank entity CET1 ratios were 16.3% and 14.1% respectively (1Q19: 15.7% and 13.6%). A gradual improvement is expected on these ratios after capital floors imposed by the regulatory authority on RHB Islamic Bank’s ratios have been slowly lifted.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....