RHB Capital - All the pieces falling into place in 3Q BUY

- We maintain our BUY rating on RHB Capital Bhd (RHB Cap), with an unchanged fair value of RM8.60/share. This is based on an FY13F ROE of 12.3%, and a fair P/BV of 1.3x FY13F.

- RHB Cap registered a 7.7% increase in net earnings in 3QFY12, taking the annualised amount to 10.4% above our and 10.6% above consensus forecasts. The better earnings were mainly due to a loan loss provision writeback. The 9MFY12 net earnings comprise 81.5% of our and 81.4% of consensus full-year forecasts FY12F. 

- Annualised loans growth was at 12.8% QoQ in 3Q, in line with the company’s targeted 12% for FY12F. Deposit growth recovered strongly to an annualised rate of 11.3%, backed partly by a higher current deposit growth. NIM was relatively stable with only a minor 2bps QoQ decline. 

- Non-interest income registered a seemingly large drop of 15.2% QoQ in 3Q, but this was partly due to a high base in 2Q, which was boosted by a spike in service fee income related to lumpy corporate loans. Thus, we view 3Q as more of a normalisation in trend. Another new mandate was achieved under the RHB-OSKIB collaboration, contributing to a stronger growth in underwriting fee income. 

- RHB reduced the gross impaired loans balance by 3.8% QoQ in 3Q, and thus, reported an improved gross impaired loans ratio to 3.1% in 3QFY12 from 3.3% in 2QFY12. Loan loss cover was further strengthened to 70.3% in 3QFY12 (2QFY12: 69.4%). There was a positive write-back in loan loss provision, of RM31mil, against a loan loss of RM36.8mil in 2QFY12, attributed to good recoveries. 9MFY12’s credit cost was at only 6bps, lower than the earlier target of 30bps. 

- At the analysts’ briefing yesterday, RHB Cap also disclosed, for the first time, the total synergy targets amounting to RM324mil from its acquisition of OSKIB. The bulk of these, i.e. about RM275mil would be revenue synergies. 

- 3QFY12’s net earnings were positive given continuing momentum in loans growth, stronger-than-expected NIM as well as ongoing sustained fee income. Asset quality has also turned out to be better-than-expected with lower new impaired loans and recoveries.

- We anticipate the following new re-rating catalysts for RHB Cap:- (a) stabilisation in gross impaired loans; (b) better-than-expected loan loss provisions; (c) higher fee income from its investment bank, which will provide evidence of revenue synergies in the OSK acquisition; (d) reassurance on capital; and (e) newsflow on management team; (f) finalisation of rights issue for Bank Mestika.

Source: AmeSecurities