RHB Capital - On firmer grounds BUY

- At our recent company visit, we understand that group common equity Tier 1 ratio (CET1) was at 8.5% as at end-September 2012, based on Bank Negara’s final guidelines. This is higher than our earlier estimate of slightly above 7%, which is positive. At the bank entity level, the bank CET1 is circa 9.5%, which is the same as our estimated 9.6%. 

- While the group and bank entity CET1 ratios are before the acquisition of OSK, both are expected to remain broadly unchanged even post the acquisition given the new share issuance. 

- Recent loans growth pipeline is strong, with these stemming mostly from the corporate segment.  The retail segment is slower in recent weeks, in terms of leading indicators, although admittedly these are still early weeks of January.  

- We believe the estimated average in the weeks-to-date in January 2013 is lower than 4Q12’s on average, but is better than 1Q12’s given  that 1Q12 was affected by the Responsible Lending Gudelines. NIM is likely to vary around 5bps to 10bps YoY, which is a good sign of stabilisation, in our view. 

- Non-interest income is expected to be sustained with a relatively healthy pipeline from the debt capital market. 

- We understand there are no particular signs of strains in terms of asset quality thus far. The only ones seen are a couple of cases for some domestic manufacturers, but these appear to be isolated cases and are thus far not indicative of any systemic risks in any particular sectors. 

- We expect the company to maintain a normalised credit cost guidance of 25bps to 30bps looking ahead. We do not expect the good recoveries seen in 9MFY12 to recur. We believe these are related to a couple of relatively large business loans. 

- In addition, RHB Cap is likely to finalise its proposed acquisition of Bank Mestika before end-January. We are now more positive as:- (1) capital ratios are now above our earlier estimates; (2) loans growth pipeline looks healthy with stable NIM; (3) asset quality is sustained; and (4) better indication on possible size of rights issue, once further details on Mestika is finalised.  Maintain Buy. 

Source: AmeSecurities