Results

• In line with expectation. Posted 3Q16 net profit of RM510.6m (+159% YoY, +44.3% QoQ), bringing 9M16 net profit to RM1.4bn (+14.5% YoY), in line with ours and street estimates, accounting 75.6% and 75.3% or our and consensus full-year forecasts.

• If lumpy impairment in 2Q16 is stripped out (including CTS cost and CA written back in FY15), normalised PAT in 9M16 was only higher by 12.4%.

Deviation

• Higher CA (RM97.3m) in 3Q16.

Dividends

• No dividend was declared, YTD dividend stood at 5cent.

Highlights

• Against FY16 KPIs… Only CASA and CTI were within guidance while other targets namely ROE, loans, gross impaired loan and overseas contribution disappointed with notable decliner from overseas contribution.

• 3Q16…. 3Q16 net profit rose to RM505.3m (+159%YoY,+44.3% QoQ) mainly driven by NOII (+12% YoY, +115% QoQ) and lower overhead cost (-29.% YoY, +2.3% QoQ). Provision surged to RM146.4m (+52% YoY, +145% QoQ) related to O&G accounts in Singapore that contributed to 20%-30% LLC. NOII was driven by trading and investment income. Given the volatile market, income from this segment may taper in the coming quarter.

• 9M16…. 9M16 net profit rose to RM1.4bn (+14.5). Hhowever normalised PAT was higher by 12.4% YoY. Overhead (-14.7% YoY) remained the silver lining to the bottomline due to IGNITE initiatives and brought CTI to 49.9%. Loans and deposits grew modestly by 2.3% YoY and 4.4% YoY due to corporate repayments and rebalancing effort towards SME segment thus pinned down LDR to 96.6%.

• Despite the growth in CASA by 0.2% QoQ, NIM dipped to 2.15% (-4bps) due to impact on OPR revision as well as lower loan yield.

• Keep watch on its quality as GIL slipped further to 2.3% given large account classified as impaired. Nevertheless, management guided that asset quality issue has peaked and could improve in coming quarter.

Risks

• Unexpected jump in impaired loans and lower than expected loan growth as well as impact from Basel III.

Forecasts

• Key forecasts remained unchanged, however we incorporate larger share capital base due to completion of reorganization and right issue.

Rating

BUY ( ↔ )

• As per management guidance, provision from large accounts could have peaked and could see the recoveries from those accounts. RHB valuation appears attractive at current valuation of 0.8x P/B vs. 3 years average of 1.3x.

Valuation

• We lower our TP to RM5.29 due to larger share capital. BUY rating is maintained. TP is derived from ROE of 8.6% and WACC of 9.4%).

Source: Hong Leong Investment Bank Research - 24 Nov 2016