Journey to Wealth
RHB Capital - Solid rebound in 2Q Buy
BUY
Fair Value RM8.50
Investment Highlights
Source: AmResearch
Fair Value RM8.50
Investment Highlights
- We maintain our BUY rating on RHB Capital Bhd (RHB Cap), with an unchanged fair value of RM8.50/share. This is pegged to a fair P/BV of 1.5x based on an ROE of 12.9% for FY12F.
- RHB Cap's annualised net earnings for 2QFY12 turned out to be 6.7% above our forecast and 8.1% above the consensus estimate of RM1,662mil. The 1HFY12 earnings made up 52.8% of our and 53.5% of consensus full-year forecasts for FY12F. The better earnings were due to lower-than-expected credit costs, while top line revenue growth in 2QFY12 made up for the slow 1QFY12.
- Gross loans rebounded to an 8.9% QoQ growth in 2QFY12, versus the 1.8% QoQ contraction in 1QFY12 ' with growth mainly from the corporate segment. Annualised loans growth is at 13.8%, above the company's targeted 12% for FY12F. NIM was stable at 2.40% in 2QFY12 (1QFY12: 2.41%). The stable NIM came from efforts to lower cost of funds, in line with the company's strategic withdrawal from the more expensive fixed deposit segment.
- Total non-interest income was 2.2% lower on QoQ basis but this was on account mainly of large investment and trading income base in 1QFY12. More encouragingly, feebased income jumped substantially by 46.8% QoQ to RM193mil in 2QFY12 from RM138.1mil in 1QFY12, attributed to loan related activities.
- The overall gross impaired loans balance was flat with only a 0.9% QoQ increase to RM3.5bil, which included about RM434mil of loans which were considered as performing but is now reclassified as impaired. Gross impaired loans ratio was still better at 3.3% in 2QFY12, against 3.6% in 1QFY12. Loan loss cover recorded a marginal improvement to 69.4% in 2QFY12, from 68.8% in 1QFY12. The company hinted that so far, there had been no major significant worrying signs in terms of impaired loans. Credit cost is low, estimated at only 15bps in 2QFY12 (1QFY12: 19bps) versus the earlier guidance of 30bps.
- RHB Cap has staged a strong rebound in loans growth, while non-interest income has been resilient, gauging by the 2QFY12 numbers. Impaired loans have turned out to be more stable than we had expected, despite a slightly negative impact from the reclassification of selected performing loans into impaired status.
- We foresee the following rerating catalysts for RHB Cap:- (a) stabilisation in gross impaired loans; (b) better-thanexpected loan loss provisions; (c) higher fee income from its investment bank, which will provide evidence of revenue synergies for its proposed OSK acquisition; (d) possible merger with MBSB.
Source: AmResearch
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
