RHB Capital - Healthy corporate loans and fee income outlook BUY

- The company is maintaining its loan growth guidance of 12% for FY12F. Consumer loans growth for this year is expected to be slower at circa 6% to 7% but this is expected to be more than made up by stronger corporate loans growth. 

- Part of the corporate loans growth is driven by bridging loan activities and the government’s Economic Transformation Programmes (ETP). 

- We also expect investment banking fees to be sustained given the continuing collaboration between RHB Investment Bank and OSK Investment Bank (OSKIB), pending completion of acquisition of OSKIB. Recall the 2Q12’s non-interest income was boosted by fee-related income – we expect the trend to continue. 

- The company hinted that net interest margin (NIM) will likely see continuing pressure, partly due to higher contribution from lower-yielding corporate loans. However, this is expected to be partially offset by higher volume of loan growth from lumpy corporate loans, as well as better fee income prospects. 

- In terms of possible impact from lower car prices, RHB Cap does not expect major changes to its loss given default (LGD) assumption currently to estimate loan loss provision. This is because it expects the LGD data to be adjusted only gradually as the latest data is included on a roll-over basis. 

- The company also clarified that it does not provide much financing to second-hand car dealers for stocking purposes. If anything, these would be on bridge-financing basis with the end-borrower already identified, with these types of loans classified under the working capital loan segment. Thus, it does not foresee much impact in terms of possible adjustments to LGD rates for its working capital loans. 

- For acquisition of Bank Mestika, the company believes it is qualified to acquire the maximum of 40% allowed under Indonesia’s new foreign shareholding, but it is in the process of clarifying on the originally planned 80% stake.  The acquisition price is within the RM1.2bil range originally announced, with any planned rights issue to be within this range. We remain positive on RHB Cap following the company visit and maintain our BUY rating. 

Source: AmeSecurities