RHB Capital - 3Q12 results beat expectations

Period    3Q12/9M12

Actual vs.  Expectations

 The 9M12 PAT of RM1,376.9m was above the consensus’ forecast (81%) but was within that of ours (77%). 

Dividends   No dividend was declared.

Key Result Highlights

 The loan book at RM106.7b grew strongly by 2.5% QoQ (or 12.69% on an annualised basis vs. our estimate of 12.0%) due to the 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 RM744.9m staying relatively healthy on both QoQ and YoY basis (at +1.8% and +7.2% respectively).  The stable NIM was due to the better liability management, which saw a better CASA growing 10.3% (annualised) and the L/D ratio down to 85% (from 88% in 2Q12). 

 The 3Q12 non-interest incomes meanwhile came in at RM273.8m, dipping by 8.1% QoQ after a strong 1H12 as the group achieved higher net gains in FX transactions, securities portfolio and MTM on derivative hedging in the previous quarter. The overall total revenue of RM1,145.5m meanwhile came down by 1.9% QoQ although on a YoY basis, it rose 11.1%.

 The total cost of RM526.4m was 8.0% higher on a YoY basis due to the higher staff and admin costs, which drove the cost-to-income ratio to 46%.

 The asset quality improved with one-off bad debt recoveries. The gross impaired loans ratio fell to 3.12%, which resulted in a better annualised credit charge ratio of 6bps. The loan coverage increased marginally to 70.3% (from 69.4% in 1Q12).  

 The 9M12 ROE of 15.0% was within our expectation.

Outlook   During the analyst briefing, the management guided that the combination of OSKIB and RHBIB could lead to a total synergy of RM324m over the next 3 years, which include RM275m in revenue synergy, RM34m in cost savings and RM15m in lower funding cost. The group has also allocated RM86m as a one-off integration cost.  As such, the merger with OSKIB is expected to be value-accretive over the long term. However, a minor dilution is likely on the first year due to the enlarged share base and one off integration cost.   

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 its OSKIB merger), and its growth potential as a real challenger to the current market leaders.

Valuation    We are maintaining our TP at RM8.30 based on a targeted 1.3x its FY2013 BV after factoring in the dilution from the larger share base. 

Risks   Tighter lending rules and a margin squeeze.

Source: Kenanga