- We maintain HOLD on RHB Capital Bhd (RHB Cap), with a lower fair value of RM6.30/share (from RM6.90/share). Our fair value is based on lower FY16F ROE of 9.6% (previously 10.1%) for the new RHB Bank which will take over RHB Cap’s listing status. This leads to a lower fair P/BV of 0.9x (from 1.0x), and a lower fair value of RM4.90/RHB Bank share (previously RM5.40). The lower fair value follows our review of our forecasts for FY16F.

- Our estimate of the swap ratio for conversion from RHB Cap share into RHB Bank share is unchanged, which is that each RHB Cap share is entitled to 1.29 RHB Bank shares following the proposed holding company restructuring. Thus, apportioning our fair value accordingly for RHB Bank means a lower fair value of RM6.30/share (previously RM6.90/share) for FY16F for every RHB Cap share held currently.

- RHB Cap’s 3QFY15 included a one-off Voluntary Separation Scheme (VSS), in relation to its recently launched Career Transition Scheme (CTS), of RM308.8mil. Excluding the impact of the one-off VSS cost, we estimate annualised 3QFY15 to be 9.3% below our forecast and - 8.4% below consensus forecast for FY15F. The main difference to our forecast was from the slower-thanexpected non-interest income line.

- Asset quality data were broadly unchanged, with gross impaired loans ratio showing an unexpected improvement based on a QoQ decline of 1.8% in the impaired loan balance, while gross impaired loans ratio improved to 1.9% in 3QFY15, vs. 2.0% in 2QFY15.

- Despite this, we are now assuming a higher credit costs assumption of 55bps (from 47bps previously). This is based on recent upticks in impaired loans seen in larger banks such as CIMB and Maybank, leading to both reporting higher credit costs of 73bps and 60bps respectively. This leads to earnings downgrade of 4.8% for our FY16F forecast for RHB Cap.

- Otherwise, there was no major deterioration in asset quality data yet in 3QFY15, which is positive. Elsewhere, we think the company did well in terms of CASA growth in 3QFY15. We maintain our HOLD rating.

Source: AmeSecurities Research - 1 Dec 2015