Results

• Results in line… RHB 2Q17 net profit of RM502m (+43% YoY, +0.1% QoQ) boosted 1H17 earnings to RM1bn (+11% YoY), making up 50.5% and 49.7% of HLIB and consensus estimates, respectively.

Deviation

• None.

Dividends

• Announced first interim dividend of 5 sen in 1H17, translating into 20% payout ratio.

Highlights

• QoQ…2Q17 net profit was flat, rising marginally by 0.1% to RM501m, on the back of a decline in NOII by 35% to RM288m. However this was well covered by the drop in loan-loss-provision (-75.2%) and higher NII by +6.8%. Lower NOII was attributed to lower MTM gains, but was offset by higher net gains from investment securities.
• YoY… 2Q17 net profit surged by +43% YoY to RM501m, emanated from higher NII by +9.5% and NOII by 12.3% respectively. NII was lifted from stronger Islamic banking income by +24% to RM296m.
• 1H17… Net profit improved solidly by +11% to RM1bn. Despite a spike in LLP by +18% YoY to RM165m, NII rose by +3.8% YoY amid lower opex (-2.5% YoY) mitigated the rise in LLP.
• Slow rise in loans … Gross loans rose +3.2% YoY and QoQ respectively to RM156bn, led by mortgage in retail segment (+8.7% YoY) and SME in business banking (+12.8% YoY). Geographically, all key markets posted decent growth: Malaysia (+4.2% YoY), Singapore (+1.9% YoY), Thailand (+8.3% YoY) and Indonesia (+56.7% YoY).
• Flattish deposits … Deposits were flat QoQ but rose +1% YoY due to a rise in the CASA by +6% YoY whilst fixed deposit continued to decline (-0.2% QoQ), leading to loan- to-deposit ratio rising to 93.1%. CASA composition now stood at 27.9% (+170bps QoQ). Despite this, NIM fell by 1bp to 2.17%.
• Asset quality… Absolute NPL was down by -2.9% QoQ but grew 15% YoY, leading to a sequential improvement in GIL to 2.29% from 2.39% in 1Q17. Moderation was seen in mortgage, credit card and personal use. During the quarter, credit cost was at 8bps, lifting 1H17 credit cost to 21bps compared to 18bps in 1H16. The additional impairment was attributed to corporate bonds in Singapore operating in the O&G 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 are somewhat surprised by the additional impairment for O&G accounts in Singapore which had already turned impaired in 2016. This came after management painted stable credit cost in FY17 during 1Q17 briefing.

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 - 30 Aug 2017