RHB Capital (RHBCap) announced that the group will be trimming its workforce by 1,812 (under the Career Transition Scheme which was completed on 30 Sept15 ) and as a result, will have to fork out a compensation of RM309m. The number of workforce downsized represents 11.8% of the RHB Group’s workforce (or 13.1% of the Group’s permanent workforce) in Malaysia. With that, the Group expects an annual personnel costs rationalization of approximately RM193m.

Comments: Our initial estimates indicate that the cost-savings from the rationalization exercise may represent about 5.4% of its 2016E’s operating expenses, and has a net profit impact of approximately 7-8% on 2016E’s earnings. The annual cost-savings also may result in a 3ppts improvement in the cost-to-income ratio from about 56% to 53%. Nonetheless, in our view, the downsizing initiative will be offset by headwinds arising from an expected NIM deterioration (due to increasing funding cost), weak loan growth as well as potentially rising credit costs. It is still a challenge for the RHB Group to achieve an ROE target of 13% by 2017. We keep our SELL rating on the RHBCap, with our PT at RM6.00 (at 0.67x P/BV on a 2016E ROE of 8.3%). Under the reorganized RHB Bank, our PT is at RM5.54 (based on 1x P/BV on 2016E BVPS).

Source: Affin Hwang Capital Research - 28 Oct 2015