Investment Highlights

• We maintain our BUY call on RHB Bank with an unchanged fair value of RM6.00/share. Our fair value is based on FY18F ROE of 9.1% leading to unchanged P/BV of 1.0x. No change to our earnings forecast.

• 3QFY17 net profit was RM489mil (-2.4%QoQ: -3.3%YoY). On a QoQ basis, earnings were flat with a higher total income,offset by an increase in operating expenses (OPEX) and provisions for loan losses.

• The group reported a profit of RM1.49bil (+4.9%YoY) for 9MFY17, supported by higher net fund-based income and lower impairment on securities, but partially offset by a decline in net non-fund based income and rise in OPEX. Cumulative earnings were within expectations, making up 72.2% of our and 73.7% of consensus estimates respectively. Annualised ROE for 9MFY17 of 8.9% was close to our estimate of 9.1% for the full FY17.

• The group continued to record a negative JAW for 9MFY17 (1.8%) with growth in OPEX outpacing that of its total income. CI ratio was 49.6% in 9MFY17, close to our projection of 49.0% for FY17.

• Gross loan growth picked up pace slightly, and continuing to grow modestly by 3.3%YoY. The expansion in credit was driven largely by mortgage and SME loans.

• NIM was stable at 2.19% in 3QFY17. This was due to group's management of funding cost which saw the redemption of its sub-debts and senior notes in 2QFY17.

• Customer deposit growth improved compared to 2QFY17, but continued to be slow at 1.5%YoY. This was due to the group's conscious decision to reduce its more expensive money market term deposits (MMTD).CASA growth remained healthy at 11.9%YoY while CASA ratio stood at 27.1%.

• Annualised credit cost in 3QFY17 was higher at 0.37% vs. 0.08% in 2QFY17. The increase in provisions in 3QFY17 was due to a write-back in allowance for a loan impairment in 2QFY17 which did not recur as well as higher provisions made for a number of unrelated loans. Nevertheless, for 9MFY17 credit cost was stable at 0.26% for (9MFY16: 0.25%), still within our assumption of 0.30% for FY17.

• 3QFY17 saw an uptick in group's GIL ratio to 2.31% compared to 2.29% in 2QFY17. Nevertheless, the ratio was still an improvement from 4QFY16's 2.43%.

• The group raised its loan loss cover (including of regulatory reserves) to 93.6% in 3QFY17 vs. 81.4% in 2QFY17. RM477.1mil was transferred from retained earnings to its regulatory reserves.

• No dividends have been proposed in 3QFY17.

Source: AmInvest Research - 28 Nov 2017