Results

• Results in line. 4Q17 net profit advanced at stronger pace of RM261.2m (+76.2%yoy, -5.9%yoy), lifting FY17 net profit to RM1.95bn (+16.9yoy). The results were in line with expectations, accounting for 96.4% and 96.5% of HLIB and consensus forecast.

Deviation

• None.

Dividends

• Declared final interim dividend of 10sen, bringing FY17 dividend to 15 sen, translating to 32% payout and 2.7% dividend yield.

Highlights

• 4Q17. RHB total operating income touched RM1.5bn (+76.2% yoy), led by higher NOII (+28.8% yoy), and marginally higher NII (+1.3% yoy). Loan loss provision (LLP) was slower to –RM114m (-63% yoy), however it was dragged by additional provision of -RM114m related to oil and gas accounts in Singapore.
• FY17. Despite LLP level moderating, however it stayed elevated at RM426m (-28.3% yoy) due to additional impairment of RM215m (mainly for O&G segment). FY17 net profit advanced by 16.9% yoy to RM1.95bn, mainly driven by combination of higher NII (+4.2% yoy), and contained LLP (-28.3% yoy) which pulled credit cost lower to 27 bps (39 bps in FY16).
• Domestic loan performed. Overall, loan growth recorded slower growth of (+3.7% yoy), weighed by Singapore operation (-12% yoy), whilst domestic loan recorded a growth of 5% yoy (supported by stronger mortgage loan and SME loan). The weaker Singapore loan was due to several large repayments and the impact of stronger Ringgit.
• Muted deposits growth. Deposits rose by only 0.3% yoy, however it was a deliberate strategy to exit high cost deposits (fixed deposits -3% yoy and money market -18% yoy). All is not lost as CASA surged strongly by 19% yoy, lifting CASA ratio to 30.4% from 25.6% in FY16. Despite high CASA, NIM eased by 2bps qoq to 2.17% (due to funding pressure as RHB was focusing on mortgage loan that carries low run rate).
• Asset quality. CTI improved to 49.9% (from 50% in end- 16), and GIL ratio increased to 2.23% (from 2.43% in end- 16). Exposure on O&G reduced to 3.21% (from 3.95%) and the O&G loan in Singapore was fully covered with the additional provision.

Risks

• Unexpected jump in impaired loans and lower than expected loan growth as well as impact from MFRS9.

Forecasts

• We fine tune our FY18 forecast (-4%) as management guided higher credit cost due to MFRS9.

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.

Valuation

• We raise our TP to RM6.00 as we roll forward our valuation base year to FY18 and we lower our COE assumption to reflect its robust earnings growth and earnings recovery. Our TP is derived from GGM model (based on COE of 11% and WACC of 9.3%). Maintain BUY.

Source: Hong Leong Investment Bank Research - 28 Feb 2018