• We maintain our BUY call on RHB Bank with unchanged fair value of RM6.10/share (0.9x FY19 BV/share) supported by an ROE of 8.9%. Although a softer 2QFY18 performance is on the cards, valuation continues to be compelling with the stock trading at 0.8x P/BV. No change to our earnings estimate.

• Recall that in 1QFY18, the group recorded a loan growth of 4.3%YoY against its 6.0% target for FY18. Retail loans are seen to be picking up in pace supported by improvements in auto and personal loans taking advantage of the tax holiday while the growth for business banking loans (SME and Commercial) has been decent. Nevertheless, we understand the wholesale banking loan growth remains challenging impacted by repayments as well as due to large corporates in the wait- and-see mode pending more clarity on the direction and policies of the new government.

• The group achieved a strong NOII in 1QFY18 that was boosted by FX gains as well as higher trading and investment income. 2QFY18 NOII is expected to be softer QoQ. This will be contributed by the slower pace in equity and debt capital markets, lower trading income with a marked-to-market impact of securities (AFS) from the rise in yields and decline in FX gains. The outlook for NOII is challenging for now. However, this may turn more positive ahead depending on initiatives/measures to be announced in the upcoming budget and the greater clarity on the government’s policies and regulations.

• We expect NIM in 2QFY18 to taper from 1QFY18’s 2.28% which has expanded 9bps QoQ due to the 25bps OPR hike. Funding cost will rise from the repricing of deposits, particularly FD rates adjusting to the OPR increase in Jan 2018. Looking forward, we expect an upward pressure on banks’ funding cost as deposit rates are likely to rise from keener competition moving closer to the implementation of the net stable funding ratio. Management is maintaining its expectation of another OPR hike of 25bps in 2HFY18 with some downside bias. However, we are keeping our view that a rate hike in 2HFY18 is unlikely to occur with the OPR kept at 3.25% for the rest of 2018.

• On CASA, the group has been focusing on securing deposits from the affluent segment and business owners of SMEs to capture the key operating accounts and payroll accounts. In 1QFY18, CASA fell 1.5%QoQ. We expect the group’s CASA growth to remain slow in 2QFY18. This will be in line with the sector’s CASA growth which has been trending lower.

• RHB Bank remained cautious on the property and oil & gas sector loans. We understand its oil & gas sector exposure in Singapore is gradually reducing due to repayments. It is likely that in 2QFY18, there will not be much movement in the oil & gas loans under the watch list from 1QFY18. Except for some exposure to the ECRL, we understand that the group has no significant exposure to other infrastructure projects that are being reviewed, deferred or terminated by the new government.

• Broadly, no significant shifts are expected on the group’s provisions. We expect provisions to be stable QoQ in 2QFY18.

• The latest foreign shareholdings stood at 9.3% as at 30 July. It has not changed much post-GE14 and remained lower compared to most of its peers. The group is scheduled to release its 2QFY18 results on 30 August.

Source: AmInvest Research - 6 Aug 2018