RHB Bank is CIMB Research's top pick for the sector.
KUALA LUMPUR: CIMB Equities Research is retaining its Add call for RHB Bank its top pick for the sector due to the potential benefits from the IGNITE 17 transformation programme and its current attractive valuations.
It said on Tuesday RHB Bank’s FY18F price-to-earnings (P/E) of nine times was below its historical five-year average of 10.4 times and the sector’s CY18F average of 12 times.
“Its loan loss coverage (LLC) has risen to more than 90% at end-September 2017 (inclusive of regulatory reserve or RR), assuaging the market’s previous concerns about inadequate coverage. The downside risks to our call are deteriorations in loan growth and asset quality,” it said.
The last traded price was RM4.91 while CIMB Research has raised the target price from RM5.96 to RM6.30.
CIMB Research said RHB Bank’s 9M17 net profit was within expectations at 75% of its full-year forecast and 74% of Bloomberg consensus estimates.
The 9M17 net profit growth underpinned by lower impairment loss The group’s net profit advanced by 4.9% on-year in 9M17, mainly due to the 54.6% on-year plunge in impairment loss.
In 9M16, it incurred a chunky impairment loss of RM252mil for its exposure to Swiber bonds, which did not recur in 9M17.
However, pre-provisioning profit slid by 1.6% on-year in 9M17, mainly dragged by a 10.9% on-year decline in non-interest income.
“In our view, RHB Bank’s group-wide IGNITE 17 transformation programme has borne fruit in the form of cost savings and Islamic banking income.
“The increase in overheads was capped at around 2% on-year in 1Q-3Q17, while Islamic banking income has grown at double-digit rates on-year since 4Q16.
“We believe that the IGNITE 17 scheme would help to revive the group’s non-interest income growth in the coming quarters,” it said.
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