Investment Highlights

• We maintain our BUY call on RHB Bank with an unchanged fair value of RM6.00/share. Our fair value is based on FY18F ROE of 9.1% leading to unchanged P/BV of 1.0x.

• 1QFY17 core earnings of RM500.3mil declined 11.4%YoY, contributed largely by lower total income (-1.7%YoY) and higher provisions for loan impairment (+64.8%YoY).

• On a QoQ basis, earnings of the group surged 91.5%, attributed to stronger non-interest income from higher brokerage, wealth management fee and treasury income as well as 57.1% lower provisions for loan impairment.

• With controlled growth in operating expenses, the group's CI ratio improved 1QFY17 to 48.9% compared to 54.3% in 4QFY16 and was in line with our estimate of 49.0% for FY17.

• Gross loan growth accelerated to 3.2%YoY from 2.0%YoY in the preceding quarter. Expansion in loan book continued to be driven by retail and SME loans while corporate loans were impacted by repayments.

• NIM slipped 1bps QoQ to 2.17% in 1QFY17 due to the competition pressure on asset yield.

• Customer deposits accelerated to 5.3%YoY compared to 4.8%YoY in the preceding quarter.CASA growth continued to rise with a stronger growth of 14.0%YoY in 1QFY17 vs. 12.0%YoY in 4QFY16. This led to an improved CASA ratio of 26.2% from 25.6% in 4QFY16.

• Annualised credit cost was lower in 1QFY17 at 0.34% compared to 0.80% in 4QFY16 but higher than 1QFY16 of 0.21%. The increase compared to 1QFY16 was contributed by higher impairment allowance for business banking due to refreshment of LGD and additional provision of some oil & gas sector loans in Singapore which had already turned impaired in 2016.

• 1QFY17 saw the group's GIL ratio rose marginally to 2.39% from 2.43% in 4QFY16. By loan purpose, all segments reported stable GIL ratios except for that of working capital loan which had upticks. The higher GIL ratio of working capital loan was related to a specific loan for construction purposes and was well secured by collateral.

• No interim dividend has been declared.

• We make no changes to our forecast

Source: AmInvest Research - 24 May 2017