RHB Bank’s 1Q18 net profit of RM590.8m (+18% yoy, +28.4% qoq) was in line with Affin’s and consensus estimates. While the strong top-line growth, from fund-based income (impact of OPR hike) and non-interest income, may not represent the trend in the upcoming quarters, we deem the overall results to be in line with Affin and consensus estimates. The operating results were within management’s guidance for 2018 – CIR was relatively steady while credit cost of 26bps was within expectations. We maintain our HOLD rating and adjust our Price Target to RM5.80 from RM5.70.

1Q18 Net Profit in Line With Estimates

RHB Bank’s strong 1Q18 net profit of RM590.8m (+18% yoy and 28.4% qoq), underpinned by fund-based income growth of 10% yoy and robust non-interest income growth (+22.6% yoy) combined with the absence of impairments, drove qoq profits higher. We believe that the strong 1Q18 growth may not represent the trend for the full year as the impact of the 25bps OPR hike on net interest income (as reflected by a +10bps NIM expansion yoy to 2.28%) may taper off, while lumpy items in non-interest income such as a RM32m fair-value gain in a PE fund and fee income derived from some capital-market deals may not be recurring. Hence, we deem the results to be within our and consensus estimates of RM2,076m and RM2,164m respectively.

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

The impact of MFRS 9 adoption was manageable with a -20bps impact on CET 1 on Day-1 adoption, with most shortfalls in provisions covered by the regulatory reserves of RM1.8bn (31 Dec 2017). RHB’s CET 1 ratio for 1Q18 stood at 13.5%. Meanwhile, the group saw an overall loan growth of +4.3% yoy and +0.7% qoq, driven primarily by the domestic market (mortgages, unsecured loans). The focus for 2018 remains unchanged in the SMEs and the mass/mass-affluent consumer markets.

Maintain HOLD, PT Adjusted to RM5.80 From RM5.70

Reiterate HOLD. We adjust our 12-month Price Target to RM5.80 (at 2019E P/BV target of 0.90x) from RM5.70 (based on a 0.93x 2018E P/BV target), underpinned by a 2019E ROE of 8.5% and cost of equity of 9%. Upside risks: increased retail/SME-banking penetration. Downside risks: weaker economic outlook due to scale-backs in the government’s fiscal spending, moderation in loan growth and NIM pressure.

Source: Affin Hwang Research - 1 Jun 2018