- We maintain our HOLD rating on RHB Capital Bhd (RHB Cap) with an unchanged fair value of RM7.40/share. This is based on an ROE of 10.5% for FY14F and an unchanged fair P/BV of 1.1x.

- RHB Cap’s 1QFY14 net earnings, if annualised, was 4.3% below our forecasts and 10.5% below consensus forecasts for FY14F.

- Loans growth was strong at 3.7% QoQ in 1QFY14, (4QFY13: 0.3% QoQ), leading to an annualised loans growth of 14.9%. This is well above the targeted loans growth of 12% for FY14F.

- Deposit growth was robust at 4.0% QoQ in 1QFY14, (4QFY13: 0.8% QoQ), translating into an annualised deposit growth of 16.1%. This came from substantially higher CASA growth of 5.1% QoQ, or at an annualised growth of 20.3%, above its target growth of 15% YoY for FY14F.

- CASA contribution to total group deposit has moved up to 23.5% in 1QFY14, from 23.3% QoQ in 4QFY13. The good growth came from retail deposits as well as improved traction for its Biz @ Work products for business depositors.

- Gross impaired loans have improved, given a significant 6.3% QoQ drop in 1QFY14 in terms of the total absolute balance (4QFY13: -3.3% QoQ), due mainly to lower new impaired loans. Gross impaired loans ratio has therefore improved to 2.5% in 1QFY14, from 2.8% in 4QFY13.

- With no new chunky impaired loans, credit costs came in low at only 17bps. Loan loss cover has strengthened significantly to 68.4% in 1QFY14, from 63.7% in 4QFY13.

- The 1Q was positive given the strong growth in CASA, and loans growth. There was also a discernible build-up in loan loss cover, which used to hover at much lower levels of around 60% a few quarters ago.

- Maintain HOLD.

Source: AmeSecurities