Affin Hwang Capital Research is retaining its buy call on RHB Bank with a target price of RM6.30 after it reported a robust 1Q19 first quarter results and expects earnings will remain resilient, supported by sound asset quality.
The research house said RHB Bank's net profit of RM630.2m (+6.7% y-o-y; +11.5% q-o-q) was broadly within Affin's estimate and market expectation.
Although fund-based income was marginally lower by 2.2% y-o-y and 2.7% q-o-q (with a NIM compression of 12bps y-o-y to 2.16%), a decline in allowances for expected credit losses, credit writebacks and lower overheads contributed in stronger bottom-line growth.
RHB saw a 1Q19 group loan growth of 5.6% y-o-y, with domestic loans at 5.1% and overseas at 9.8% y-o-y. Maintain BUY, with a TP of RM6.30 (at 0.94x CY20 P/BV target).
"From the conference call, management is guiding for a 5bps NIM compression in 2019, with a year-end expectation of circa 2.13% largely due to the impact of the OPR cut."
"Though management believes that the group could achieve its 2019 ROE target of 10.5% through fee income initiatives, lower provisions y-o-y, and lower funding cost (with the expiry of an RM1bn sub-debt, which may not be renewed), we are of the view that the coming quarters may moderate given a more cautious outlook," it said.
Affin Hwang Research is keeping its 2019-21 earnings forecasts unchanged, as it believes that RHB's earnings will remain resilient, supported by sound asset quality.
"We maintain our BUY rating on RHB. Despite rolling over our valuation horizon to CY20, our price target remains unchanged at RM6.30 based on a 2020E P/BV of 0.94x (previously 2019E P/BV of 1.0x), underpinned by our 2020E ROE of 9.4% and cost of equity of 9.6%."
"RHB continues to work on its FIT22 programme (2018-2022), focussing primarily on affluent SMEs, mid-caps and large caps, and strengthening Malaysia as a core market. Downside risks: NIM pressure and weaker asset quality," it said.