News

RHBCap announced yesterday that it has completed Career Transition Scheme (CTS) for its employees.

The CTS which is voluntary in nature involved 1,812 employees which represent 13.1% of the group’s permanent workforce of 13,787 in Malaysia.

The group further stated it only approved 1,812 applications in view of the group’s business requirements.

The successful applicants will be released in stages between Nov 2015 and January 2016

The CTS payout will amount to RM309m and annual personnel costs rationalization will be approximately RM193m.

Outlook

As the successful applicants will be released in batches within a 3-month period, we expect CTS payout will amount to RM206m for 2015 and the remaining RM103m in 2016.

We expect our forecast earnings to dip due to the CTS payout and Cost-to-income ratio to increase by 2.9ppts for FY15. For FY16, however, we expect earnings to be better as CIR to be lower by 120bpts from our initial forecast.

Forecast

As such, our earnings forecasts are revised by -14% for FY15 and +2.2% for FY16.

EPS will be at 60.0 sen/72.0 sen for FY15/16E (from 65.0 sen/70.0 sen previously)

ROE will be 9.0%/9.5% for FY15/16E (from 9.7%/9.2%).

Our estimates are based on the assumption that its capital raising exercise will be completed by end of 2015.

Rating

We maintained OUTPERFORM

The stock is looking attractive with its low P/B but decent ROE among its domestic peers.

The stock is currently one of the cheapest currently trading at 0.8x P/B value. At 0.8x P/B, it is nearly reaching its lowest point in its 10-year history, we believe that the stock price has bottomed out.

The industry is currently trading at 1.5x P/B with an average ROE of 12.8%.

Valuation

Our new TP is RM7.26 (post-rights). This is based on a blended FY16E PB/PE ratio of 1.0x/9.6x (previously 0.9x/9.6x FY16E PB/PE). The PB ratio applied takes into account RHBCAP’s share performance when its ROE hovered around 9% - 10%, while the PE ratio applied is within its 3-year historical range of 9x-11x.

Risks

Steeper margin squeeze from tighter lending rules and stronger-than-expected competition.

Slower-than-expected loans and deposits growth.

Higher-than-expected rise in credit charge as result of a potential up-cycle in non-performing loan (NPL).

Further slowdown in capital market activities.

Stickier than expected CIR.

Source: Kenanga Research - 28 Oct 2015