- At our recent company visit, the company alluded to leading indicators for retail loans being better on a YoY basis, while the SME and corporate segments are generally slower. The company is maintaining a loans growth target at 12% for FY13F. The company is targeting to maintain NIM at above 2.30% for FY13F, or a decline of 10bps YoY.

- However, the investment bank’s pipeline is certainly much stronger with the combined OSK platform, with RHB having secured about two-thirds of the mandates that are being worked on. On an absolute basis, the number of mandates secured so far is much better than the same time last year. This is positive as it indicates ongoing value extraction from its merged investment banking platform.

- The company is also maintaining its overall revenue synergy target of RM92mil from the merger, for FY13F. It foresees these to be derived mainly from the fee and treasury income portion.

- As for the fee income ratio target, the company maintains its long-term fee income ratio target at 35%, and at about 30% in the next couple of years (FY12: 28.6%). This is in-line with our forecast of 31.5% for FY13F. With the better pipeline secured for the investment bank, we believe our fee income ratio forecast for FY13F is achievable.

- We expect asset quality to be stable. The company reaffirmed its credit cost target of 25bps to 30bps for FY13F, while it has hinted that a more normalised sustainable level would be 30bps to 50bps in the longer term. To recap, recent 4QFY12’s new NPLs were higher due to a couple of manufacturing accounts, leading to a higher credit cost of 36bps in 4QFY12 vs. a positive write-back in 3QFY12.

- For the Indonesian Bank Mestika deal, the company is still awaiting Bank Indonesia’s approval as well as a new regulatory body, Otoritas Jasa Keuangan (OJK) which oversees the financial institutions as part of a joint supervision between Indonesia’s central bank and the capital market regulatory body. As there appears to be an extra layer of approval, the company has now indicated a firmer timeline for completion, stating that if regulatory approvals were not obtained by mid-2013, the deal would very likely be called off.

- We estimate that without Bank Mestika, our ROE would be upgraded by 0.2ppt (without impact from an assumed RM761mil rights issue), leading to possible fair value of RM9.10 from our current RM8.90. Maintain BUY.

Source: AmeSecurities