Wednesday 27 February 2013

RHB Capital - Major parameters comfortably above scorecards BUY


- We maintain our BUY rating on RHB Capital Bhd (RHB Cap), with an unchanged fair value of RM8.40/share. This is based on an FY13F ROE of 12.0%, and a fair P/BV of 1.3x.

- RHB Cap’s FY12 net earnings came in at 5.5% above our forecast and in-line with consensus’ RM1,792mil.

- Loans growth was at 14.4%, above its target of 12%. Gross loans growth picked up significantly to 4.5% QoQ in 4QFY12 from 2.5% QoQ in 3QFY12. Deposit growth was robust at 10.0% QoQ in 4QFY12. NIM was well managed, with only a 3bps QoQ decline to 2.35% in 4QFY12 despite a drop in LDR to 80.6% in 4QFY12 from 84.8% in 3QFY12.

- Total non-interest income recorded a large increase of 65.1% QoQ in 4QFY12. This was due to the incorporation of around two months of OSKIB’s operations. Fee-based income of the non-interest income was at a much higher new level of RM227.7mil in 4QFY12 (3QFY12: RM152.1mil). Investment and trading income was relatively unchanged; thus, the improvement in non-interest income came partly from the fee-based income following the consolidation of OSKIB. Total revenue synergies achieved from OSKIB was slightly ahead at RM58mil in FY12, vs. the targeted RM56mil.

- Gross impaired loans balance was stable, with only a marginal uptick of 0.3% QoQ in 4QFY12, while gross impaired loans ratio improved to 3.0% from 3.1% in 3QFY12. New NPLs were higher, likely stemming from a couple of manufacturing accounts. We believe this was a blip and is not indicative of wider systemic risks. Credit cost was at 36bps in FY12 due to an individual allowance related to this, but the overall credit cost for FY12 was still benign at only 13bps, below the earlier guidance of 30bps, due to earlier good recoveries.

- 4QFY12’s major operating parameters came in well above its KPI scorecards in terms of loans and deposit, stable NPL, with a major uplift to non-interest income. This is despite its involvement in the two major acquisitions, ie OSKIB and Bank Mestika in Indonesia.

- To recap, our FY13F earnings estimates already assume the completion of the acquisition of Bank Mestika and an about RM1bil rights issue. Our ROE estimate is therefore 12.0%, assuming higher equity base from the rights issue.

- We expect the following rerating catalysts for RHB Cap:- (a) stabilisation in gross impaired loans; (b) better-thanexpected loan loss provisions; (c) higher fee income from its investment bank; and (d) finalisation of rights issue for Bank Mestika.

Source: AmeSecurities

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