Results

• In line with estimates… RHB off to a good start by posting results in line with expectations, with net profit of RM500.3m (-9.4% YoY, +91.6% QoQ) making up 25.2% and 26.8% of HLIB and consensus estimates, respectively.

Deviation

• None.

Dividends

• None.

Highlights

• YoY… Despite containing overhead expenses at RM761m (-2.1% YoY), operating income slid by -3.3% YoY to RM1.55bn due to lower contribution from net interest income and non-interest income by -1.7% YoY and -6.9% YoY respectively. Additionally, loan-loss provision rose to RM132m (+65% YoY) on the back of higher IA allowance of RM64m (+676% YoY).

• QoQ… Net profit almost doubled to RM500.3m attributed to the higher non-interest income by 37.6% QoQ to RM444m and a decline in loan-loss provision by 57% QoQ chiefly from lower IA by -75% QoQ.

• Loans… Flat QoQ but grew slightly by +3.2% YoY driven from mortgage and loans to SME by +15% YoY and +12%YoY respectively. However, it was offset by large corporate repayment that moderated corporate segment loans by -7.8% YoY. For FY17, RHB is targeting to hit 5% loans growth.

• Deposits… Deposits were flat QoQ but rose +5% YoY due to the rise in the CASA and NIDs by +14%YoY and +15%YoY whilst fixed deposit continued to decline for third consecutive quarter, by -0.8 QoQ, leading to a flat loan-to deposit ratio of 91.8%. CASA composition now stood at 26.2% (+60bps QoQ). Despite this, NIM fell by 1bp to 2.17%.

• Asset quality… GIL improved marginally by 4bps QoQ to 2.39% driven by improvement across the board, except for working capital which rose 3.7% QoQ. Loan-loss-coverage inched up to 60.1% whilst credit cost was in line with annualized guidance of 35bps (9bps in 1Q17). Nevertheless, RHB made additional impairment on several corporate accounts in Singapore which purely from oil and gas industry.

Risks

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

Forecasts

• Maintained.

Rating

HOLD ( ↔ )

• We believe RHB’s proactive measures in managing asset quality will limit the downside risk on its share price. RHB is targeting 5% loan growth that will translate into improvement in earnings.

Valuation

• We maintain our TP at RM5.50. Our TP is derived from GGM model which comprises i) WACC of 9.9% ii) ROE of 9.2%. Maintain HOLD

Source: Hong Leong Investment Bank Research - 24 May 2017