RHB Bank : Credit cost for 9MFY16 still within expectation BUY

STOCK FOCUS OF THE DAY

RHB Bank : Credit cost for 9MFY16 still within expectation             BUY

We maintain our BUY rating on RHB Bank with an unchanged fair value of RM5.90/share. Our fair value is based on FY17F ROE of 9.1% leading to P/BV of 1.0x. 3QFY16 net profit of RM505mil (-6.8%QoQ) led to normalised 9MFY16 earnings of RM1.6bil (+12.4%YoY). Cumulative core earnings were slightly ahead of expectations accounting for 80.9% of ours and 84.5% of consensus full year net profit for FY16F. The improvement in cumulative net profit was supported by a modest revenue growth of +5.0%YoY with increase in NII and NOII as well as lower OPEX from cost initiatives partially offset by high provisions for loan impairment of corporate loans.

Stronger NOII for 9MFY16 was driven by higher insurance underwriting surplus and increase in investment and trading income.

Positive JAW continued to be recorded for 9MFY16 with revenue outpacing OPEX growth.

CI ratio in 9MY16 improved to 49.9% compared to 54.6% in 9MFY15 based on normalised OPEX. CI ratio remained on track to meet its KPI target of =53.0% and our assumption of 51.0% for FY16F. Gross loan growth decelerated to +2.3%YoY from +4.8%YoY in the preceding quarter.

Annualised credit cost was higher in 3QFY16 at 0.38% compared to 0.16% in 2QFY16 (excluding impairment on Swiber's bonds). For 9MFY16, credit cost was 0.25%, higher than 9MFY15 of 0.21% but remained within our assumption of 0.50% for FY16F. GIL ratio rose to 2.25% in 3QFY16, up from 1.88% in 4QFY16 . This was due to impairments of corporate loans related to Oil & Gas sector as well as the restructuring of a loan extended to steel related manufacturer in the preceding quarter. No dividend has been declared in 3QFY16. We adjust our loan growth assumption for FY16/17/18 lower to 3.0%/5.0%/6.0% respectively (previously 5.0%10.0%/10.0%) as well as adjusted our estimate for NOII slightly higher. Overall, we have tweaked our core net profit estimate for FY16/17/18 by +0.8%/-0.5%/-2.7% respectively.

Others :

Econpile Holdings : 1QFY17 Net Profit Grows 13% YoY     HOLD

MBM Resources : Still too dependent on Perodua stake                HOLD

Genting Plantations : 3QFY16 boosted by PK price and strong output       HOLD

ECONOMIC HIGHLIGHTS

Malaysia : Policy rate to remain unchanged in 2016

UK : Autumn Statement

NEWS HIGHLIGHTS

Malakoff Corp : Seeks RM785mil compensation from EPCC contractors of Tg Bin plant

Construction Sector : Mercury Industries to sell off auto refinish firm

Oil & Gas Sector : Petronas able to reduce costs with Blue Ocean Strategy