Highlights

• We attended the briefing by RHB Bank’ Group Treasury & Global Market. Below are the salient points from the briefing yesterday:-
   
• In part of RHB’s IGNITE effort, Group Treasury has been consolidated into one unit vs. three previously to streamline the operations under one Group. The effort saw various changes in the Treasury Group, including hiring and exiting personnel.
   
• Operating under one unit allows RHB to form sharper business focus and strategized synergies for better value creation. Additionally, it will strengthen the platform for repositioning and spearheading overseas treasuries and funding centers.
   
• There are three agendas to achieve 25% PBT contribution to the Group PBT by 2020: i. Boost revenue from key growth areas, namely FX, derivative and fixed income sales. New IT system will be introduced to support cross border transaction. The sales of product e.g. FX, derivatives will be ramped-up through collaboration and new product development frequently. ii. Manage cost and enhance productivity, with ultimate objective to reduce funding cost and optimization of liquidity compliance requirement. RHB will launch new ALM system by the end of the year and this will enable RHB to monitor various compliance requirement closely e.g. LCR and LDR. iii. Optimize risk adjusted return, by rebalancing its portfolio into AFS and slowdown the HTM portfolio. Proven by the slowdown in HTM for the past 36 months, which translates into higher yields position, on par with market leaders. RHB vowed to grow fee-based income to shed the burden of balance sheet items to generate income.
   
• We are positive on the above development as this will allow RHB to exploit its presence in eight countries especially in Singapore where the PBT contribution was ~8.5% (FY15). The streamlined treasury process will ensure the elimination of unnecessary forex cost.

Risks

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

Forecasts

• Unchanged.

Rating

BUY (↔)

• Our BUY call on RHB is underpinned by its undemanding valuation at 0.88x P/B vs. 3-years average of 1.31x. Additionally, the recent organizational restructuring will benefit RHB in term of higher tax efficiency, enhanced interest savings and improved ROE.

Valuation

• We maintain our BUY call with unchanged TP at RM5.35 based on Gordon Growth.

Source: Hong Leong Investment Bank Research - 11 Nov 2016