RHB Bank : Strong growth in pre-provisioning operating profit BUY

STOCK FOCUS OF THE DAY

RHB Bank : Strong growth in pre-provisioning operating profit    BUY

We maintain our BUY rating on RHB Bank with a lower fair value of RM5.90/share (previously RM6.30/share). Our revised fair value is based on a lower FY17F ROE of 9.1% (previously 9.8%) for the new RHB Bank, which has taken over the listing status of RHB Cap. This leads to a lower P/BV of 1.0x (from 1.1x previously). We revised our estimates for FY16 and FY17 shareholders’ funds higher by 3.9% and 4.6% respectively after the release of the balance sheet numbers of the new bank holding company, RHB Bank post Group restructuring. 1HFY16 reported earnings of RM915m (-14.7%YoY) were impacted by a one-off full impairment of RM253.5mil on its holdings of Swiber’s bonds. On a normalised basis, net earnings of RM1.1bil (+13.7%YoY) after adjusting for one-off impairment on Swiber’s bonds were ahead of expectations accounting for 59.0% of ours and 56.8% of consensus full year estimate for FY16. This was supported a by strong growth in pre-provisioning operating profit (PPOP) of +15.5%YoY. Stronger net interest income, higher Islamic banking income and lower OPEX from cost initiatives resulted in an improved PPOP in 1HFY16.

Despite loan growth picking up pace in 2QFY16 to +1.4%QoQ and +4.8%YoY, it was still behind the Group’s target of 8.0% for FY16. The Group will most likely achieve a lower loan growth of 4-5% for FY16. Credit cost trended higher to 18bps for 1HFY16 compared to 1bps in 1HFY15. This was due mainly due to lower collective impairment allowance in 1HFY15 from a write back in provision expense on its mortgage portfolio. Including provisions on Swiber’s bonds, credit cost was higher at 34bps but still within our assumption of 50bps for FY16F. GIL ratio rose to 2.1% in 2QFY16, up from 1.8% in 1QFY16 This is due to impairments of a corporate loan for construction purposes and loans for purchase of non- residential property.  A single-tier interim dividend of 5 sen was declared.

Others :

IJM Corporation  : A Slow Start To FY17  BUY

Maxis  : Aiming for flat EBITDA, watching new rivals         HOLD

IJM Plantations : Back in the black in 1QFY17        HOLD

QUICK TAKE

Top Glove  : A minor fire at Meru Plant  HOLD

ECONOMIC HIGHLIGHTS

Malaysia : Foresee a low inflationary environment

NEWS HIGHLIGHTS

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Property Sector : Hua Yang targets RM500m sales in FY17