- We expect the latest property measures to only marginally affect RHB Capital’s (RHB Cap) mortgage loans, as RHB Cap had not been active in the residential mortgage loans segment compared to the industry. While January and February 2014 are likely to have been quiet, we gather that overall loan demand has picked up in March 2014.

- However, we believe that there are ongoing effects on personal loans, from the household measures put in place in mid-2013. In addition, there are also new features being added to its Amanah Saham unit trust financing (ASB) loans, which may now require a minimum 10% financing for the variable return portion of the funds. These are the two main product lines for RHB Cap’s sub-brand EASY (5.3% of total group loans). To recap, personal loans make up 27% of EASY’s total loan book while ASB makes up 73% of EASY’s total, in 4QFY13.

- The new growth areas that RHB Cap will be looking at include SME business banking, as existing relationships from its retail branches have not been fully mined.

- We also believe that non-interest income may not be as robust in 1QFY14 compared to 4QFY13, as 4QFY13 was boosted by several debt capital market mandates.

- There have been no new major signs of strain in its loan portfolio. For its recently impaired legacy loans related to the steel sector amounting to about RM608mil, we believe there is no additional loan loss provisioning beyond the RM156mil already provided for in FY13. This is because the company considers these to have more than sufficient collateral backings.

- Despite no new major impaired loans, the company is maintaining its credit cost target at 30bps-40bps (our forecast is higher at 46bps FY14F). This is likely due to efforts to eventually raise loan loss cover. We are positive if loan loss cover is raised, as RHB Cap’s loan loss cover of 63.7% FY13 is one of the lowest among the local banks.

- We maintain HOLD as we are leaving our forecasts unchanged. The company is maintaining its key targets for FY14F: (1) ROE target of 11.5%; (2 ) Gross impaired loans ratio of less than 2.5%; (3) Loans growth of 12%. Our forecast is lower at 8.5% FY14F; (4) CASA growth of at least 15%, with no specific deposit growth target this time although the company intends to maintain an LDR of 90%; (5). Cost-to-income ratio of less than 50%. 

Source: AmeSecurities