Investment Highlights

• We maintain BUY on RHB Bank with a lower fair value of RM6.30/share (from RM6.50/share). We now peg the stock to a FY20 P/BV of 0.9x from 1.0x earlier. This is based on a lower projected ROE of 9.4% for FY20. We fine-tune our 20/21 earnings by +0.3%/+1.1% after factoring in another potential OPR cut by 25bps to 2.50% in 1H 2020 in addition to the 25bps rate cut announced on 22 Jan 2020. Also, we have raised our estimates for NOII to account for potential monetisation of the gains on securities from the compressed bond yields.

• 4Q19 earnings were flat at RM621mil (+0.8% QoQ) as total income was dampened by higher operating expenses (opex) and provisions. 4Q19 saw 9.2% higher opex QoQ which included the provisioning of expenses to shutter its Hong Kong investment banking business.

• Net profit for 12M19 of RM2.48bil grew 7.7% YoY driven by higher NOII, lower provisions and net write-back in allowances on financial assets and investments. FY19 earnings were within expectations, making up for 104.3% of our and 102.5% of consensus estimate.

• Loans expanded 4.3%YoY supported by mortgage, SME and overseas loans. Domestic loan growth was in line with the industry at 3.9%YoY.

• 4Q19 NIM improved slightly by 1bps QoQ to 2.14% recovering further from the OPR reduction of 25bps in May 2019. For FY19, NIM contracted by 12bps to 2.12% due to higher funding cost as well as the impact from the OPR cut on May 2019.

• Deposits climbed by 6.5% YoY with CASA gaining traction improving the CASA ratio to 25.7%. CASA growth was supported by expansion of retail, business banking and overseas’ low cost deposits.

• The group posted a positive JAW of 0.9% in FY19. 12M19 CI ratio of 48.9% was in line with our estimate OF 49.0%.

• 12M19 credit cost at 0.18% was in line with our estimate. The group’s GIL ratio declined to 1.97% in 4Q19 from 2.16% in 3Q19 due to normalisation of certain R&R loans and loan write-offs.

• Group and bank entity CET1 ratios continued to be higher than its peers at 16.3% and 14.3% respectively. The group has a comfortable capital ratio of 13.0%.

• A final dividend of 18.5 sen/share has been proposed bringing the total dividends for FY19 to 31.0 sen/share (payout: 50.1%), higher than our estimate of 23.7 sen/share. Moving forward, the group is guiding for a dividend payout of 50.0%.

Source: AmInvest Research - 28 Feb 2020