RHB Bank’s 1H18 net profit of RM1,160m (+16% yoy) was in line with Affin’s and consensus estimates. We deem the results to be within expectations as the strong top-line growth, from fund-based income and non-interest income, may be moderated by potential funding pressure, should RHB start beefing up its deposit base. There were no negative surprises with 1H18 NIM up 11bps yoy to 2.29%, 1H18 CIR flat yoy at 49.1% and the credit cost up a marginal 2bps yoy to 22bps. However, loan growth has been subdued up to end-June18 (ytd) arising from corporate repayment, but we believe that 2H18 may see improvement. We maintain our HOLD rating and PT of RM5.80.

1H18 Net Profit (+16% Yoy) Within Expectations

RHB Bank reported a decent 2Q18, with net profit of RM570.3m, up 13% yoy but down 3.5% qoq (due to lower non-interest income). The 1H18 net profit of RM1,161m (+16% yoy) accounted for approximately 56% and 54% of our and consensus estimates, respectively. We are of the view that funding pressure may rise in 2H18 if RHB starts beefing up its deposit base (which has stayed flat ytd). RHB’s 1H18 pre-provision operating profit (PPOP, +8.5% yoy) was driven by robust fund-based income growth (+10.8% yoy) with NIM rising by 11bps yoy to 2.29% while non-interest income held up with a 1.2% yoy growth (attributable to net forex and investment gains). Overall, the 1H18 net credit cost remained low at 22bps (vs. 1H17 at 20bps) while the cost-to-income ratio was steady yoy at 49.1%.

2H18 Outlook – Loan Growth Momentum May Pick Up; Focus on FIT22

We believe that 2H18 will see more robust loan growth as business and consumer sentiment may start to turn more positive, given more certainty in policy direction (post-GE14). Under its FIT22 programme (2018-2022), the focus is primarily on affluent SMEs, mid-caps and large caps, and strengthening Malaysia as a core market.

Maintain HOLD, PT Unchanged at RM5.80

We maintain our HOLD rating and 12-month Price Target of RM5.80 (at a 2019E P/BV target of 0.90x), underpinned by a 2019E ROE of 8.5% and cost of equity of 9%. Upside/downside risks: increased/decreased retail/SME-banking penetration; improved/weaker asset quality.

Source: Affin Hwang Research - 3 Sept 2018