RHB results were within expectations, with 1Q18 net profit of RM590.8m (+18.1% YoY, +28.4 QoQ), making up 26.4% and 27.5% of our full year forecast and consensus. Results were driven by all round improvements, namely rapid growth in NII, NOII and flat loan-loss-provision. This was however, partially mitigated by higher overhead expenses. Loan growth was driven by domestic loan growth which offset the weakness seen in overseas. We reiterate our BUY rating on RHB with unchanged TP of RM6.00, derived from (i) COE of 11.5% and (ii) WACC of 9.6%.

Results in line. RHB reported 1Q18 net profit of RM590.8m (+18.1% YoY, +28.4 QoQ), that was broadly in line with our and consensus estimates. 1Q18 earnings represented 26.4% and 27.5% of our and full year net profit forecast. No dividend was declared.

QoQ. 1Q18 earnings grew strongly by 28.4% as modest growth in opex (+1.8%) was mitigated by strong growth in NII by 4.8%. Subsequently, NOII contribution advanced healthily by 36.2% to RM566.7m.

YoY. Despite higher overhead expenses (+13.4%) driven by personnel and establishment cost, 1Q18 net profit grew strongly as RHB incurred higher forex gains that lifted NOII higher by 27.5%. Meanwhile in NII, expansion in NIM by 11bps QoQ and YoY to 2.78% drove NII higher by 8.6% to RM1.2bn.

Loan. 1Q18 group loan growth expanded 4.3% YoY, largely supported by growth in domestic loan (+6.7% YoY, the key driver of RHB’s loans). Ex-Malaysia’s loan growth witnessed weaker loan growth (-14.2% YoY), primarily due to Singapore (-16.0% YoY). Segmentally, retail and business banking experienced largest pickup by 11.4% YoY and 8.7% YoY, chiefly from mortgage, unsecured business and SME segments.

Deposits. Total deposits recovered marginally by 3% YoY. CASA rose rapidly by 14.3% YoY, lifting CASA ratio to 29% from 26% in 1Q17. The shore up in deposits taken during the quarter drove improvement in LDR as the ratio declined to 93.1% from 95.3% at end Dec-17.

NIM. NIM improved rapidly on QoQ by 11bps to 2.28% as RHB benefited from the recent OPR hike. Management believes thatNIM expansion is not sustainable, and will normalise as deposits competition will soon play a catch up.

Asset quality. Gross impaired loans (GIL) balance was flat, while asset quality in Malaysia deteriorated marginally by 3bps QoQ to 1.57% Credit cost declined to 26 bps in 1Q18 from 29 bps in 4Q17 on the back of improving asset quality trends of ex Malaysia.

Forecast. We leave our forecast unchanged as the results were in line.

Maintain BUY, TP: RM6.00. We maintain our GGM-derived TP of RM6.00 based on i) COE 11.5% of ii) WACC of 9.6%. We remain positive that RHB will continue to deliver earnings recovery in FY18 and FY19, reinforced by the end of impairment programs, especially in the overseas operations. This is supported by management’s positive view that it remained comfortable with its oil and gas portfolio, and reiterated its stance that worst is likely over in terms of its oil and gas segment.

Source: Hong Leong Investment Bank Research - 1 Jun 2018