Results

• Results in line… RHB’s 3Q17 net profit of RM488.8m (-3.3% YoY, -2.3% QoQ) lifted 9M17 net profit to RM1.49bn (+5.9% YoY), making up 75.2% and 73.7% of HLIB and consensus full year forecast.

Deviation

• None.

Dividends

• None, YTD dividend stood at 5 sen.

Highlights

• QoQ… 3Q17 net profit declined by -2.3% QoQ, weighed by higher opex (+4.3%) and lower NOII (-6.5%). Nevertheless, this was offset by higher NII which grew to RM1.16bn (+5.6% QoQ), premised on stabilized NIM and loan growth. Loan-loss-provision rose to RM147m therefore pushed 3Q17 credit cost higher to 9bps.

• YoY… 3Q17 net profit eased by -3.3% dragged by lower NOII (-24.8%). However it was well cushioned by lower opex (-4%) and higher NII (+8%).

• 9M17… Net profit advanced by +5.9% YoY to RM1.49bn. Higher LLP by +9.2% YoY and lower NOII by -10.7% YoY was mitigated by solid NII growth of +5.2% and slower opex by -3% YoY. NOII was impacted lower fee income and treasury income. Positively, wealth management unit has been progressing well since the start of this year.

• Better loan growth… Loan rose by +3.3% YoY, driven from domestic loan whilst Singapore continued to pullback. 9M17 loans was lifted by both SME (+4.5% YoY) and mortgage (+12.4% YoY). Management is positive on near-term lending activity, which is expected to meet guidance at 5%.

• Strong CASA again… Despite flattish deposit growth of 2% YoY, CASA sustained its strong growth by +12.5% YoY, mainly from its SME accounts. CASA composition improved to 27.1% end-Sep 2017 from 25.6% end-Dec 2016. Higher CASA has been instrumental to RHB’s stable NIM of 2.19% in 9M17.

• Asset quality… GIL was weaker on QoQ by 20bps to 2.31%. Nevertheless, it has been on an improving trend for 9M17 from 2.43% as at Dec-16. RHB made significant effort in raising its loan-loss-cover to 93.6% in preparation for MFRS9 while maintaining credit cost guidance at 35bps. Exposure on O&G exposure was broadly unchanged at 3.5%; about 75% of these from Malaysia while the remaining 25% are from Singapore (1QFY17: 16%).

Risks

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

Forecasts

• We raise our forecast by 0.4% in FY18 and 2.2% in FY19 as we factor in higher loan growth assumption (to 6% from 5%).

Rating

BUY

• We foresee better outlook for RHB in FY18 and FY19. We expect RHB to post faster-than-expected earnings recovery in FY18 and FY19 reinforced by the end of impairment programs. Additionally, earnings will be boosted by (i) NII through stable NIM and (ii) recovery of NOII.

Valuation

• We raise our TP to RM5.60. Our TP is derived from GGM model which comprises i) WACC of 9.9% ii) COE of 12%. Upgrade to BUY.

Source: Hong Leong Investment Bank Research - 28 Nov 2017