Investment Highlights

• We maintain our BUY call on RHB Bank with an unchanged fair value of RM6.50/share. Our FV is pegged to FY20 P/BV of 1.0x supported by an ROE of 9.9%. We fine-tune our FY19/20/21 earnings by +2.3%/+0.7%/-0.6% to RM2.38bil/RM2.51bil/RM2.67bil after adjusting our credit cost assumptions slightly lower and tweaking our net interest income (NII) estimates.

• 3Q19 earnings were flat at RM616mil (+0.1% QoQ) attributed largely to lower non-interest income (NOII) which offset the decline in operating expenses (opex) and provisions.

• Net profit for 9M19 of RM1.86bil grew 7.0% YoY driven by higher NOII and lower provisions. 9M19 earnings were within expectations, accounting for 80.0% of our and 77.1% of consensus estimate.

• Loan growth decelerated to 5.1% YoY in 3Q19 from 6.8% YoY in 2Q19 due to slower retail loans (mortgage, personal loans), SME, corporate as well as a softer loan momentum in Singapore.

• 3Q19 NIM rose 4bps QoQ to 2.13% partially recovering from the OPR reduction of 25bps in May 2019. On a YTD basis, NIM contracted by 13bps to 2.11% due to higher funding cost as well as the impact of the OPR cut.

• Deposit growth moderated with a slowdown in CASA expansion, consequently lowering the CASA ratio to 25.4%. The sluggish CASA growth was mainly contributed by the weaker corporate CASA in Singapore.

• Opex rose by 2.6% YoY in 9M19 due to higher personnel, IT and marketing expenses. The group recorded a positive JAW of 1.1%. 9M19 CI ratio of 48.5% was in line with our estimate of 49.0% for FY19.

• 3Q19 credit cost was lower at 0.16% compared to 0.18% in 2Q19 due to higher recoveries. 9M19 credit cost at 0.18% (9M18: 0.20%) was within our estimate of 20bps for FY19. The group’s GIL ratio inched higher to 2.16% in 3Q19 from 2.15% in 2Q19 due to 1 large business banking loan which we observed was related to the manufacturing sector as well as higher impairments of household loans in Malaysia.

• Group and bank entity CET1 ratios continued to be higher than its peers at 16.5% and 14.4% respectively. Capital ratios could further improve after capital floors imposed by the regulatory authority on RHB Islamic Bank’s ratios have been slowly lifted as well as after the disposal of insurance business which will release the investment cost of circa RM500mil deducted in CET1 capital should the deal with Tokio Marine materialize.

Source: AmInvest Research - 26 Nov 2019