RHB Bank’s 2018 net profit of RM2,305.2m (+18.2% yoy) was within Affin’s and consensus estimates. Overall, the results reflect an operational turnaround for the banking group, as fund-based income continued to grow decently by 8.5% yoy (underpinned by loan growth of 5.5% yoy and NIM expansion of 6bps yoy to 2.24%). Meanwhile, asset quality showed improvement leading to a lower credit cost of 19bps (from 26bps last year) as some accounts were upgraded from the ‘restructured & rescheduled’ (R&R) status. A final DPS of 13 sen has been proposed for a total DPS of 20.5 sen for 2018. Maintain BUY, with a slightly higher TP of RM6.30 given fine-tuning on our 2019-20 forecasts.

2018 Results In-line – Decent Growth in Net Operating Income

RHB Bank saw a robust year in 2018, with net profit rising 18.2% yoy to RM2.3bn, while 4Q18 saw a net profit of RM565.4m (+23% yoy and -2.3% qoq). RHB achieved most of its 2018 KPIs including an ROE of 10.3%. Operationally, fund-based income growth for 2018 has been robust at 8.5% yoy, though non-interest income saw slower growth at 1.8% yoy due to weaker fee-based income growth (from non-banking operations). Overheads grew in line with business growth as 2018’s CIR remained steady at 49.3% (vs. 49.9% in 2017). During the year, we saw increased overseas profit contribution to the group (at 3% to group PBT), driven by a turnaround at RHB Bank Singapore’s operations.

KPIs for 2019 – Anticipating a Better Year Driven by a Sound Economy

For 2019, management has set these KPIs – ROE of 10.5%, loan growth of 5.0%, CASA growth of 5%, GIL ratio <2.0% and CIR of 49%. Management highlighted that future dividend payouts will be at least 30% of net profits.

Reiterate BUY. Lifting PT to RM6.30 From RM6.10

We maintain our BUY rating with a slightly higher Price Target of RM6.30

(2019E P/BV target of 1.0x) from RM6.10 (P/BV target of 0.96x) as we finetune our 2019-20 EPS forecasts by 0.8-1.1%. Our valuation assumptions include a 2019E ROE of 9.65% and cost of equity of 9.6%. RHB continues to work on its FIT22 programme (2018-2022), whereby the focus is primarily on affluent SMEs, mid-caps and large caps, and strengthening Malaysia as a core market. Downside risks: NIM pressure, weaker asset quality.

Source: Affin Hwang Research - 28 Feb 2019