News

• RHB Cap announced that the group has completed its Career Transition Scheme (CTS), and a total of 1,812 applications (representing 11.8% of the group’s Malaysian workforce and 13.1% of the group’s permanent workforce in Malaysia) were accepted.

• Employees whose applications approved will be released in batches between Nov-15 and Jan-16.

• The group will incur a one-off CTS payout of RM309m, and it expects to achieve an annual personnel cost rationalization of RM193m. Financial impact

• While one-off CTS cost of RM309m will hit our FY15 net profit forecast by 15.7%, this will result in significant reduction in future personnel cost, hence enhancing its earnings forward. The expected RM193m personnel cost rationalization accounts for 9.1% of our FY16 net profit forecast.

Positives

• , as this allows RHB Cap to operate from a leaner base from FY16 onwards.

Catalysts

• Gaining more traction in cost rationalization;

Risks

• Unexpected jump in impaired loans and lower than expected loan growth as well as impact from Basel III.

Forecasts

• Maintain for now, pending results announcement by end- Nov.

Rating

BUY

Positives

• Valuations still lagging behind; OSK merger and IGNITE 2017 transformation already bearing fruits; Bank@ Work; Rights issue and reorganization will enhance tax efficiency, eliminate goodwill, enhance interest savings as well as higher ROE and capital ratios; new reframed strategy to focus on performance and profitability.

Negatives

• Low liquidity, ROE at lower end among peers and EPS dilution from rights issue.

Valuation

• Target price maintained at RM7.53 (Gordon Growth with ROE of 9.9% and WACC of 10.2%). Maintain BUY, given its inexpensive valuations, which lagged peers and below book.

Source: Hong Leong Investment Bank Research - 28 Oct 2015