Investment Highlights

• We maintain our BUY call on RHB Bank with a revised fair value of RM6.30/share (previously: RM6.00/share). Our fair value is based a higher BV/share after imputing the actual balance sheet numbers for FY17. It is supported by an FY18F ROE of 9.1% leading to unchanged P/BV of 1.0x. We fine-tune our FY18/19 net profit estimate by - 1.4%/0.7% after adjusting our CI and credit cost assumptions.

• The group recorded a net profit of RM460mil (-5.9%QoQ) in 4QFY17 with a higher total income offset by higher operating expenses and a pre-emptive provision for impairment of RM104mil on corporate bonds related to the oil & gas sector in Singapore.

• 12MFY17 net profit was RM1.95bil (+16.0%YoY). Cumulative earnings were within expectations, making up 95.0% of our and 96.5% of consensus estimates respectively. Annualised ROE for 12MFY17 of 8.7% was close to our estimate of 9.1%.

• The group recorded a positive JAW for 12MFY17 (0.3%). CI ratio was 49.9% in 12MFY17, close to our projection of 49.0%.

• Gross loan grew 3.7%YoY with domestic loan growth of 5.2%YoY partially offset by the contraction in international loans of 9.0%YoY. The latter was due to repayment of loans in Singapore and FX translation effect with the strengthening of the domestic currency. Expansion in credit continued to be driven largely by mortgage and SME loans.

• 12MFY17, the group's NIM was stable at 2.18%. The group continues to actively managing its funding cost as seen from the deliberate strategy to run-off the costlier MMTD deposits.

• Total deposit growth was subdued while CASA grew at stronger pace of 18.8%YoY, lifting the CASA ratio higher to 30.4%.

• In 4QFY17, credit cost was lower at 0.29% compared to 0.37% in 3QFY17. For 12MFY17, credit cost was 0.27% below our estimate of 0.30% and management's guidance of 0.35%.

• Overall group GIL ratio has improved slightly to 2.23% in 4QFY17 from 2.31% in 3QFY17. Loan loss cover inclusive of regulatory reserves climbed to 101.6% from 93.6% in the preceding quarter.

• A final dividend of 10 sen/share has been proposed bringing the total dividends to 15 sen/share (payout : 31%) for FY17 in line with our expectation.

• RHB Bank Group and RHB Bank entity CET1 ratios were 13.9% and 13.1% respectively. We understand that a fully loaded CET1 ratio for the bank entity was 12.6%. Potentially, the day 1 impact of MFRS 9 could lower this ratio by another 50bps. The group targets to maintain a CET1 ratio of at least 11.5-12.0%.

Source: AmInvest Research - 28 Feb 2018