CIMB Research's top pick is RHB Bank
KUALA LUMPUR: Affin Hwang Capital Research is retaining its Hold rating for RHB Bank and raised its Gordon Growth-derived 12 month price target to RM5.35 from RM5.20.
It said on Wednesday this was based on a 2018 estimates 0.87 times price-to-book value (P/BV) multiple (previously 0.9 times).
“Overall, we are of the view that there will be more opportunities for growth as indicated by the stronger 1Q17 GDP growth of 5.6% and the recovery in Malaysia export growth.
“A more robust deal pipeline for loans and capital markets should bode well for the industry. Presently, our loan growth expectation for RHB remains unchanged at 5%-6% p.a. (FY17-19E),” it said.
Affin Hwang Research lowered its2018 return on equity (ROE) assumption to 8.5% from 8.6%; and cost of equity remains 9%.
“We estimate that a total redemption of RM3bil in Tier-2 sub-notes and senior debt, coupled with a new Sukuk issue of RM250mil (at 4.88%), would result in annual interest expense savings of RM76m, while net interest margins (NIM) would improve to 2.12% to 14% in FY17-19. Hence, we increase our FY17-19E EPS by 1.4% to 2.5%,” it said.
Affin Hwang Research said RHB Bank’s 1Q17 net profit of RM500mil (-11% on-year, +91.5% on-quarter) was in line with expectations. The silver lining in 1Q17 was mainly a sequential decline in the cost-to-income ratio (49%) and a higher current account and savings accounts (CASA) ratio at 26.2% (+2 percentage points on-year).
Asset quality, reflected by the GIL ratio, appears stable on-quarter though it has deteriorated versus 1Q16. The additional allowances on-year were from business banking and certain O&G sector accounts.
“Overall, we believe the economic outlook is turning more positive and should bode well for the sector. Maintain Hold, PT raised to RM5.35 from RM5.20 as we roll forward to CY18E,” it said.
RHB Bank (RHB) saw a rebound in on-quarter net profit by 91.5% to RM500.3mil, though it was down by 11.5% on-year.
“The overall results were within our and market expectations. At the operating level, RHB’s 1Q17’s net income was marginally lower by 1.7% on-year though it improved by 5.2% on-quarter (on marked-to-market gains),” it pointed out.
The 1Q17 fund-based income (-1.4% on-year, -2.2% on-quarter) was mainly affected by weaker performance at retail banking and corporate banking, and the group NIM is holding up well, though down by 1bp on-quarter to 2.17% (1Q16: 2.22%).
Affin Hwang Research said higher impaired loan allowances in 1Q17 of RM132.4mil (+64.8% on-year ) were driven primarily by the business banking division and a few oil & gas sector corporate accounts which have been classified as impaired since last year.
Compared to 4Q16, allowances declined sharply by 57% and the outlook appears more stable. Management has also guided that 2017’s credit cost could possibly average below the 35bps recorded in 1Q17 (1Q16: 22bps; 4Q16: 79bps). This could imply upside to our current assumption of 44bps in 2017,” it said.
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