RHB’s 9M18 net profit of RM1.74bn came in above expectations, representing 80.5% and 80% of our and consensus full year net profit forecasts. Loan growth picked up pace by 4% YoY, assisted by domestic loan growth of 4.3% YoY. Segmentally, retail and business banking pushed RHB loan growth higher, where mortgage grew 15.7% YoY (in retail) and SME (business banking) grew 6.2% YoY. Customer deposits were flat, rising only by 1% YoY on the back of marginal improvement in CASA by 1% YoY. GIL continued to disappoint as GIL ratio upticked to 2.37% from 2.33% in 6M18. 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%.

Stronger results. 3Q18 net profit of RM578.7m (+18.4% YoY, +1.5% QoQ) took 9M18 net profit to RM1.74bn (+16.8% YoY). The results came in above expectations, representing 80.5% and 80% of our and consensus full-year forecasts. The results were anchored by stronger operating income as well as lower allowance for loan loss.

QoQ. Net profit grew modestly by 1.5% to RM578m as loan loss allowance (+82%) and opex (+3.1%) were more than offset by stronger non-interest income (+28.7%, in particularly trading and investment income).

YoY. The 6.3% increase in total operating income was aided by stronger NII (+10.1%), but partly offset by lower NOII (-4.2% stemming from weak IB related income). Higher operating income, coupled with softer loan loss allowance (-44%) resulted in 3Q18 net profit increasing by 18.4% to RM578.7m.

YTD. 9M18 net profit strengthened by 16.8% to RM1.74bn, aided by higher operating income by 10.1% and softer loan loss allowance by -22.6% amid escalating opex by 6.3%.

Loan and deposit. Loan growth picked up by 4% YoY, assisted by domestic loan growth of 4.3% YoY while loan growth in Singapore eased by -1.2% YoY. Segmental wise, retail and business banking pushed RHB loan growth higher, where mortgage grew 15.7% YoY (in retail) and SME (business banking) grew 6.2% YoY. Corporate loan growth remained subdued by -10% YoY. On the funding side, customer deposits were flat, rising only by 1% YoY on the back of marginal improvement in CASA by 1% YoY. NIM moderated by 6bps QoQ to 2.23% as repricing of longer-term deposits kicks in.

Asset quality. GIL continued to disappoint as GIL ratio upticked to 2.37% from 2.33% in 6M18. The weakness was linked to one specific account in oil and gas sector. Stripping off this account, GIL ratio improved to 2.28% in 9M18. Credit charge trending slower to 16bps vs. 19bps in 6M18 as RHB recorded higher recoveries. Moving forward, RHB is targeting GIL ratio around 2.2% as it expects R&R accounts situation to improve further.

Forecasts. Although the results were slightly above expectations, we keep our forecast unchanged as we take a prudent stance.

Maintain BUY, TP: RM6.00. The only downside during 9M18 results was its asset quality issue which we expect RHB to make further efforts to normalise the number through close monitoring of R&R accounts. 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 - 28 Nov 2018