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. No change to our earnings forecast.

• 2QFY17 net profit came in at RM501mil (+0.1%QoQ: 43.1%YoY). On QoQ basis, earnings growth was flat with a higher total income offset by an increase in OPEX as well as an impairment of RM108mil on its bonds related to the oil & gas sector in Singapore.

• 1HFY17 earnings grew 8.7%YoY to RM1bil, supported by higher net fund based income and lower impairment on securities but partially offset by a decline in net non fund based income. Cumulative earnings were within expectations, accounting for 48.8% of our and 49.9% of consensus estimates. Annualised ROE for 1HFY17 of 9.1% was in line with our estimate.

• The group reported a negative JAW for 1HFY17. OPEX grew 1.9%YoY and that outpaced its total income growth of 0.1%YoY. This led to a higher CI ratio of 49.3% in 1HFY17 compared to 48.4% in 1HFY16. Nevertheless, the ratio remained within our estimate of 49.0% for FY17.

• Gross loan growth remained slow at 3.2%YoY. Expansion in loans was driven by mortgage and SME loans.

• NIM improved 2bps QoQ to 2.19% in 1QFY17 due to management of funding cost.

• Customer deposits decelerated to 1.0%YoY from 5.3%YoY in the preceding quarter.CASA growth remained strong at 13.5%YoY. The group's CASA ratio improved further to 27.9% in 2QFY17 from 26.2% in the preceding quarter.

• Annualised credit cost in 2QFY17 was lower at 0.08% compared to 0.34% in 1QFY17. For 1HFY17, credit cost was 0.21% (1HFY16: 0.18%) within our assumption of 0.30% for FY17.

• 2QFY17 saw the group's GIL ratio improved to 2.29% from 2.39% in 1QFY17. On QoQ basis, the group's impaired loan balance fell 2.9%QoQ driven largely by lower impaired construction loans.

• An interim dividend of 5 sen/share has been proposed for 1HFY17 (payout ratio: 20.0%).

Source: AmInvest Research - 30 Aug 2017