- We maintain our HOLD rating on RHB Capital Bhd (RHB Cap) with an unchanged fair value of RM9.50/share. Our fair value is based on the possible merger with CIMB. This is based on our estimated ROE of 11.2% FY15F for the enlarged RHB Cap entity, leading to a fair P/BV of 1.3x on an enlarged book value of RM7.93/share.

- RHB Cap’s annualised 3Q surpassed our forecasts by 10.3% and consensus forecast for FY14F by 4.4%. The positive surprises are at the non-interest income line, and the lower-than-expected loan loss provision line. The 9M results made up 81.7% of our full-year forecast and 77.3% of consensus forecast for FY14F.

- Annualised loans growth remains strong at 15.6% in 3QFY14, thus exceeding the company’s targeted loans growth of 12% for FY14F.

- NIM was flat on a QoQ basis, at 2.29% in 3QFY14. There was no positive impact from the 25bps rate hike which came into effect on 10 July 2014, due to three main reasons: (1) full quarter impact of debt papers raised; (2) attempts to lock in longer-term FDs, in line with increasing expectations of likely more rate hikes ahead; and (3) lower CASA momentum, attributed to lumpy corporate withdrawals. We think the CASA trend is likely in line with industry.

- The non-interest income line did well in 3QFY14, with a robust growth of 41.7% QoQ. The fee income line was robust, which is likely due to fees related to conversion of its investment bank mandates, leading to significantly better underwriting and arrangement fees. Overall the good momentum seen for the non-interest income line was attributed to better cohesion between its investment and corporate banking divisions.

- The 3Q did particularly well in terms of its non-interest income line, indicating the company has managed the merger distraction well, with no derailment of its good momentum.

- We do not think that RHB Cap’s share price drop of 18 sen yesterday to RM8.27 was due to results. We believe RHB Cap’s share price is now largely driven by CIMB’s share price performance, as both are now intertwined through the swap ratio from the proposed merger (1 RHB Cap share to 1.38 CIMB share). Maintain HOLD.

Source: AmeSecurities