RHB Capital Marginally above consensus in 2Q12

OUTPERFORM ↔
Target Price: RM9.00 ↔

Period
2Q12/1H12

Actual vs. Expectations  
The 1H12 PAT of RM889.4m was marginally above the consensus’ forecast (54%) but within ours (50%).

Dividends
No dividend was declared.

Key Result Highlights

• The loan book at RM104b grew strongly by 8.9% QoQ (or 13.5% on annualised basis vs. our estimate of 12%) due to strong growth in Corporate & Investment lending, Islamic lending and Global Financing. Net interest margin (NIM) was stable at 2.40% (vs. FY11: 2.41%) with the net interest incomes of RM731.9m staying relatively healthy on both QoQ and YoY basis (at +3.2% and +4.2% respectively).  
• The stable NIM was due to better liability management, which saw a slower deposit growth with the L/D down to 88% (from 84% in 2011).  
• 2Q12 non-interest incomes (excluding Islamic Income contribution) meanwhile came in at RM323.0m, stable at - 2.2% QoQ and +2.1% YoY after a strong turnaround in 1Q12 as the group achieved higher net gains in FX transactions, securities portfolio and MTM on derivative hedging. The overall total revenue of RM1,167.8m meanwhile rose 1.5% QoQ and 6.0% YoY.  
• The total cost of RM530.2m was 15.4% higher on a YoY basis due to higher staff and admin costs, which drove the cost-to-income ratio to 45% (from 1Q’s 45.5%).
• Asset quality improved with the gross impaired loans ratio at 3.30%, which resulted in a better annualised credit charge ratio of 14bps. The loan coverage increased marginally to 69.4% (from 68.8% in 1Q12).  
• In total, the 1H12 ROE of 14.7% was within our expectation of 14.5% and management’s guidance of 14.0%. 

Outlook
Its merger with OSKIB is strategically an ideal fit, adding significant diversification of clienteles, regional scale in capital markets and immediate access into other ASEAN markets. However, the new shares issued could lead to a minor dilution.
Business-wise, the group foresees a strong 2H with good corporate lending and bond issuance pipelines to drive earnings.

Change to Forecasts  
We are maintaining our PAT estimates of RM1,797.8m and RM1,951.0m for FY12 and FY13 respectively.

Rating 
MAINTAIN OUTPERFORM
RHBCAP stands out from its peers as it trades at just 1.2x BV compared to its long term average of 1.8x. In our view, the current price of RHBCAP has ignored its ROE of 11- 12% (post-new shares issue for OSKIB merger) and its growth potential as a real challenger to the current market leaders.

Valuation
We are maintaining our TP at RM9.00 based on a targeted 1.4x its FY2013 BV after factoring in the dilution of the larger share base.

Risks
Tighter lending rules and a margin squeeze.

Source: Kenaga