RHBCAP (FV RM9.90- BUY) 1QFY12 Results Review: Moving on to a Better Year

The group’s 1QFY12 results were largely in line with consensus and our full-year estimates. Loans growth came in below expectations due to a lumpy corporate repayment in 1Q12 but expect growth traction to normalize in  the  subsequent quarters. The  significantly improved LDR of 81% provides promising scope to raise loans growth, while sustaining NIMs from a less aggressive fixed deposit growth strategy. Pre-provision operating profit growth was commendable at 4.1% y-o-y, driven by stronger trading income, forex income and Islamic banking income. The stabilization in NIMs and absence of one-off lumpy CLO provisions in FY12 provide a more promising profit growth outlook. Maintain FV of RM9.90 based on 1.76x FY12 P/BV, 14.1% ROE. RHB Cap displays the most attractive P/BV to ROE metrics among banking stocks in Malaysia at just 1.32x P/BV vs a sustainable ROE of 14.1%.

In line. The group’s annualized 1QFY12 earnings were largely in line with our full-year forecast, with 1QFY12 earnings representing 25.3% of consensus and 25.5% of our fullyear forecast. The group’s 1QFY12 net profit declined 4.8% y-o-y as  the  higher overhead cost of 15.8% and individual allowance  outweighed a 9.1% y-o-y revenue growth.  The top-line growth was largely buoyed by higher forex income (+31.4%), trading gains from its securities investments  – both AFS and held for trading portfolios (+290.4%)  – and marked-to-market gains  on hedging derivatives (+283.4%),  but  this was partially offset by lower brokerage income (-19.1%). Net interest income growth was relatively benign, up 1.6% y-o-y but down 2.3% q-o-q. The q-o-q decline was attributed to lumpy corporate loan repayment in 1Q12, resulting in a 1.9% q-o-q decline in the overall loan base, while NIMs was only marginally impacted by 1bps to 2.41%.

Higher margin EASY banking portfolio drives growth.  The group  experienced a more subtle  q-o-q NIM compression  of 1bps vs a much wider industry-wide compression. This was partly due to the group’s continued traction in growing its higheryielding EASY banking loan portfolio, which expanded 17.1% q-o-q, of which 77% of the portfolio comprises safer collateralized ASB loans. Loans for the purchase of securities, which  emanate  largely  from  EASY banking ASB loans, expanded 45% y-o-y vs the group’s overall loans growth of 9% y-o-y.

Better liability growth management. The group’s loans to deposit ratio (LDR) declined to a comfortable 81% from a peak of 89% in 2010 after  expanding  its costlier fixed deposit (FD) base aggressively over the past two years. The current focus on expanding CASA and less so on expensive FDs has helped stabilize NIMs, which management expects to remain relatively stable at current levels for the rest of the year  at ~2.41%. The much lower LDR provides a fair degree of headroom to slowdown its deposit growth relative to loans growth and thus, enabling it to sustain its current NIMs in FY12.

Source: OSK