Investment Highlights

• We maintain our BUY call on RHB Bank with an unchanged fair value of RM6.20/share. Our fair value is based on FY19 ROE of 9.3% leading to a P/BV of 0.9x. No changes to our forecast.

• The group recorded a net profit of RM591mil (+28.4%QoQ; +18.1%YoY) in 1QFY18. The improved earnings on a year-on-year basis was contributed by a higher net interest income (NII) and non-interest income (NOII) and lower provisions for loan losses, partly offset by higher operating expenses (OPEX) and taxes.

• 1QFY18 earnings were within expectations, making up 26.8% of our and 27.5% of consensus estimates respectively. Annualised ROE for 1QFY18 came in strongly at 10.4% vs. 9.1% in 1QFY17.

• The group’s loans growth was flat at 0.7%QoQ with a positive domestic loan growth of 1.1%QoQ dampened by the contraction in international loans of 3.5%QoQ contributed by FX translation impact with the strengthening of the domestic currency against SGD in Singapore.

• NIM rose by 11bps QoQ to 2.28% in 1QFY18. This was contributed by the OPR hike of 25bps on Jan 2018. The rise in NIM is likely to taper off subsequently, arising from an increase in funding cost. This is due to the lagged impact of deposits repricing following the increase in interest rates.

• 1QFY18 saw a strong OPEX growth of 13.4%YoY due to IT and higher personal cost which is likely to slow down in the subsequent quarter. Against a total income growth of 13.8%YoY, the group recorded a positive JAW of 0.4% and CI ratio of 48.8% in 1QFY18 which is in line with our estimate of 49.0% for FY18.

• Impaired loans balance rose by 3.4%QoQ to RM3.57bil. Overall group GIL ratio has risen slightly to 2.29% in 1QFY18 from 2.23% in 4QFY17. By country and on a QoQ basis, impaired loans in Singapore fell by 14.7% while that in Malaysia increased by 16.4% due to MFRS 9. In 1QFY18, credit cost of 0.28% was within our estimate of 0.30% for FY18.

• Day-1 impact of MFRS 9 was consistent with the guidance of a drop in capital ratio of not more than 50bps. The adoption of the new standard had minimal impact which saw the group’s retained earnings decline only by RM123mil despite of the need to increase its provisions on day 1 by RM1.52bil (+59.2%). This was mitigated by transfer of regulatory reserves of RM1.12bil to retained earnings resulting in a drop in fully loaded CET1 ratio by only 20bps to 13.7%.

Source: AmInvest Research - 1 Jun 2018