Valuations remain attractive for RHB Bank
KUALA LUMPUR: HLIB Research is turning more positive on RHB Bank operationally, due to various progresses made to achieve the bank’s IGNITE2017 transformation programme.
Despite this, the research house said it remained concerned on RHB’s asset quality which had surprised with additional impairment for two quarters.
“Should the asset quality issue be addressed in the upcoming Q3’17 results, it may represent a re-rating catalyst for RHB,” the research house said on Monday.
It maintained its Hold call on the counter as well as its target price of RM5.50.
On the banks performance in the first half, the research house noted that the spike in loan-loss provision by 18.5% on-year to RM165mil was mitigated by 3.8% higher NII and declining operational expenditure by 2.5%, delivering a net profit of RM1bil.
Excluding the oil and gas (O&G) account that had been written-off, absolute gross impaired loan continued to progress well with RM100mil of reduction, lowering GIL ratio to 2.29% in Q2’17.
“We continue to remain watchful on RHB’s credit cost despite its exposure on O&G easing to 3.7% of total loans.
“We note that under the watchlist category has also declined to RM1.8bil as at Q2’17,” it added.
On investment banking, the research house expects the business may regain traction after the disruption from the aborted attempt of merger.
In July 2017, RHB completed the transfer of Treasury Business and Structured Lending Business from RHB Investment Bank to RHB Bank.
“Following from this, we expect its investment bank unit will resume delivering stable NOII to RHB post-the failed merger,” it said.
It also does not discount the possibility of M&A for RHB as existing financial institutions continue to look for opportunity to enlarge market dominance.
“Moreover, current valuations for Malaysian banks are below their average book value, making M&A attractive for now than ever,” it added.
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