RHB Bank’s 2017 net profit of RM1.95bn (+16% yoy) was in line with Affin’s and the consensus forecast. 4Q17 net profit, however, declined by a further 5.9% qoq as a result of additional impairments and higher overheads incurred. For 2017, a substantially lower credit cost of 27bps (-12bps yoy) as well as impairments have been the key earnings drivers as operating income expansion remains modest. Loan growth, which has been at a subdued 3.7% yoy, is expected to see a marginal growth of circa 4.4-5% in 2018 as more initiatives are being put into the consumer and SME businesses. Maintain HOLD, Price Target raised to RM5.70 (0.93 P/BV target) from RM5.35.

2017 Net Profit in Line With Estimates; 4Q17 Net Profit -5.9% Qoq

RHB Bank’s (RHB) 2017 net profit came in at RM1.95bn (+16% yoy) driven by sharply lower impairments as well as lower allowances (-28.3% yoy) while credit cost declined by 12bps to 27bps. Results were within our and consensus estimates. Operationally, RHB’s 2017 pre-provision operating profit grew by 3.4% yoy arising from: i) fund-based income growth of +2.8% yoy; ii) a 1.5% yoy growth in non-interest income; and iii) 2.9% yoy growth in opex. Overall, RHB’s funding pressure eased, driven by: i) a conscious move to manage down pricey deposit growth and boost lower-cost CASA growth (+19% yoy); and ii) a decline in total debt-capital funding (-32.5% yoy). These have resulted in a steady 2017 NIM vs. 2016, which averaged at circa 2.18%. Meanwhile, 4Q17 net profit was down by 5.9% qoq (-3.3% yoy) due to a RM104m impairment.

2018 Outlook – IFRS 9 Impact Manageable; Stronger Retail/SME Loans

As at 4Q17, RHB has beefed up the group impaired loan cover to 101.6% from 93.6% in 3Q17. Going into 2018, RHB gave credit cost guidance of 30bps under the adoption of IFRS 9 (vs. 27bps in 2017). Management is also more optimistic with 2018’s loan growth target of 6% (2017: 3.7%), though we assume a target of 4-5% (consumer and SMEs) in 2018-20E.

Maintain HOLD, PT Raised to RM5.70 From RM5.35

Reiterate HOLD. We revise our 12-month Price Target to RM5.70 (at 2018E P/BV target of 0.93x) from RM5.35, underpinned by a 2018E ROE of 8.7% and cost of equity of 9%. We have revised 2018-19E earnings by 2.6-4.4% to account for the 25bps OPR hike and potentially improved NIM (arising from more effective funding-cost management). Upside risks: increased retail / SME banking penetration. Downside risk: NIM pressure.

Source: Affin Hwang Research - 28 Feb 2018