Results in line. RHB’s 1H18 net profit of RM1.16bn (+16% YoY) came within our and consensus expectations, accounting for 54% of our and consensus full-year forecasts.

Dividend. Declared 7.5 sen (5 vs. in 1H17), translating into 25.9% payout.

QoQ. 2Q18 net profit declined by 3.5% to RM570.2m, as lower operating expenses (- 7.4%) and allowance for credit losses of RM45.2m (vs. RM69.3m last quarter) were negated by a 45.4% decline in NOII (resulted from lower net gains from investment securities, MTM gains and forex gains).

YoY. Despite lower allowance for credit losses and expenses, net profit increased by 13.5% to RM570.2m, as the slight weakness in NOII was more than mitigated by stronger NII (arising from NIM expansion of 10bps YoY to 2.29% and 3.1% YoY loan growth).

YTD. Net profit grew 16% to RM1bn in 1H18, assisted by higher operating income (+12%) and lower allowance for credit losses (which declined by 3.4% to RM5.6m) but partly offset a 7.5% increase in overhead expenses (+7.4%, due to personnel cost and establishment cost). CTI was under control at 49.1% vs. 49.3% in 1H17. Lower allowance for credit losses was helped by net write back on other asset and hence credit cost was stable at 22bps vs. 20bps in 1h17.

Loan. Despite one large repayment in corporate segment, loan growth was stable at 3.1% YoY, largely attributed to the stronger retail segment by 12.3% YoY, while in the business segment, the slack in commercial segment by -1.3% YoY was offset by higher loan growth in SME segment by 8.2% YoY. Geographically, Singapore loan growth fell by -11.6% as RHB tightened its underwriting credit, while Malaysia loan growth was stable at 4.5% YoY.

Deposits. Total deposits were flat, rising only by +0.1% YoY. We understand the flattish deposit growth was due mainly to management’s deliberate move to balance between overall liquidity (i.e. contain pricey deposits) and NIMs. Fixed deposits and CASA moderated by 5.5% YoY and 4.1% YoY, however NIM higher by 10bps YoY to 2.29% due to active asset liability management. CASA ratio stood at 29% vs. 27.9% in 1H17.

Asset quality. GIL ratio upticked to 2.33% vs. 2.29% in 1H17 due to weakness in Malaysia GIL which increased to 1.76%.

Forecasts. We leave our forecasts unchanged as the results were in line.

Maintain BUY, TP: RM6.00. Despite lowering its loan and deposit targets in FY18, we believe RHB’s ROE target of 9-10% it still intact leveraging on its further earnings recovery in FY18. Maintain BUY rating with unchanged TP of RM6.00 based on GGM of (i) COE 11.5% of (ii) WACC of 9.6%.

Source: Hong Leong Investment Bank Research - 3 Sept 2018