RHB Bank’s 1H17 net profit of RM1bn (+9.4% yoy) was in-line with Affin’s and consensus estimates. Operationally, RHB saw a flat 1H17 operating income yoy (as it faces subdued fund-based income growth), while expenses crept up marginally. The only silver lining in 1H17 was the substantially lower impairments vs. 1H16 (which was impacted by impairment of the Swiber bonds). Overall, we believe the outlook for loan growth will be much stronger in 2H17E than in 1H17, in anticipation of more fiscal project roll outs. We maintain our HOLD call and TP of RM5.35 (0.87x 2018E P/BV multiple). An interim DPS of 5 sen has been proposed (2Q16: 5 sen)

1H17 Net Profit In-line With Estimates; 2Q17 Net Profit Flat Qoq

RHB Bank’s (RHB) 1H17 net profit came to RM1bn (+9.4% yoy) while 2Q17 net profit of RM501m (+43% yoy, flat qoq) was driven by sharply lower impairments (in the O&G sector) vs. 1H16 (impacted by the Swiber bonds impairment). Otherwise, operating income was flat yoy for 1H17 on the back of marginal fund-based income growth (+1.1% yoy) as the group was adversely impacted by the contraction in the high-yielding ASB loan financing (down circa 8% yoy) while the residential segment continued to underpin group loan growth which was partially affected by repayments. In the meantime, the ease in funding pressure as a result of the repayment of a sub-debt and senior debt totalling c.RM2.9bn helped to mitigate the decline in 1H17 NIM, estimated at 2.18%, vs. 2.2% in 1H16.

GIL Ratio Appears to be Improving; LLC on An Increasing Trend

RHB’s GIL ratio has been on an improving trend, from 2.43% in 4Q16 to 2.29%, while the loan-loss cover (LLC) is gradually improving from 74.7% in 4Q16 to 81.4% in 2Q17. In our 2017E forecasts, we have factored in a higher credit-cost assumption of 44bps vis-à-vis guidance of 35bps, in anticipation of further increases in allowances as management tightens credit standards prior to the MFRS 9 implementation.

Maintaining HOLD Call and TP of RM5.35

We maintain our HOLD rating. Our Gordon Growth Model-based 12-month TP of RM5.35 (at a 2018E P/BV of 0.87x) is underpinned by a 2018E ROE of 8.5% and cost of equity of 9%. Upside risks: further revenue growth and cost savings from IGNITE 2017 as well as increased penetration in retail/ SME banking. Downside risk: weaker loan growth.

Source: Affin Hwang Research - 30 Aug 2017