Stock Name: RHBCAP
Company Name: RHB CAPITAL BHD
Research House: AMMB
RHB Capital Bhd
(March 29, RM5.70)
Maintain buy at RM5.62, fair value raised to RM7.20: We maintain our buy rating on RHB Capital (RHBCap) with a revised fair value of RM7.20/share (from RM7.10 previously). Our new fair value is based on higher fair price/book value (P/BV) of 1.8 times (from 1.7 times), as our return on equity (ROE) has now been tweaked upwards to 14.9% (from 14.8%) FY10F following our company visit.
We believe RHBCap is underestimated in the momentum in its loan growth. Loan growth has picked up significantly since its reorganisation exercise in early 2007 whereby its banking, investment banking, Islamic and insurance divisions are now regrouped under a more customer-centric retail, corporate and investment bank (CIB), Islamic and international divisions.
As such, RHBCap's loan growth is not only about new lending to the public sector. Its market share of loans has risen in key areas in FY09 versus FY08: (a) mortgage loan is up 7.4% from 7.1%; (b) non-residential mortgages up 5.3% from 4.3%; (c) credit cards to 8.5% from 8.4%; (d) auto loans to 6.7% from 6.5%, (e) working capital loans to 11.3% from 10.0%; (f) SME loans to 9.5% from 8.5%; and (g) overall market share of 8.5% versus 8.2%.
Besides this, there is room for non-interest income to come in stronger than expected, particularly on the forex side, given a pick-up in trade activities. Should forex profits reach FY07 and FY08's levels of say RM250 million (our current forecast: RM223.2 million), we estimate a 1.4% upgrade in net earnings for FY10F, taking ROE to 15.1% - our fair value would be upgraded further to RM7.40/share.
Our scrutiny of RHBCap's detailed composition of net earnings indicates that its ROE target of 14.5% to 15% FY10F would be easily achievable and sustainable. This is inclusive of potential rights issue to fund its Indonesia acquisition. We have modelled in an ROE estimate of 14.9% FY10F (our forecast has factored in the rights issue). Our net earning is 10.9% above consensus' RM1,276.8 million FY10F.
Despite this, RHBCap's valuation of P/BV of 1.4 times has yet to catch up with its ROE potential. We believe RHB is one of the most underrated mid-cap banks, trading only at a P/BV of 1.4 times (much lower than sector P/BV of 1.9 times), but on track to deliver mid-teen ROE close to the sector average ROE of 15%.
We maintain our buy on RHBCap. Key re-rating catalysts are (a) meeting its KPI targets outlined for FY10F; and (b) the successful execution of its expansion in Indonesia. - AmResearch, March 29
This article appeared in The Edge Financial Daily, March 30, 2010.
Company Name: RHB CAPITAL BHD
Research House: AMMB
RHB Capital Bhd
(March 29, RM5.70)
Maintain buy at RM5.62, fair value raised to RM7.20: We maintain our buy rating on RHB Capital (RHBCap) with a revised fair value of RM7.20/share (from RM7.10 previously). Our new fair value is based on higher fair price/book value (P/BV) of 1.8 times (from 1.7 times), as our return on equity (ROE) has now been tweaked upwards to 14.9% (from 14.8%) FY10F following our company visit.
We believe RHBCap is underestimated in the momentum in its loan growth. Loan growth has picked up significantly since its reorganisation exercise in early 2007 whereby its banking, investment banking, Islamic and insurance divisions are now regrouped under a more customer-centric retail, corporate and investment bank (CIB), Islamic and international divisions.
As such, RHBCap's loan growth is not only about new lending to the public sector. Its market share of loans has risen in key areas in FY09 versus FY08: (a) mortgage loan is up 7.4% from 7.1%; (b) non-residential mortgages up 5.3% from 4.3%; (c) credit cards to 8.5% from 8.4%; (d) auto loans to 6.7% from 6.5%, (e) working capital loans to 11.3% from 10.0%; (f) SME loans to 9.5% from 8.5%; and (g) overall market share of 8.5% versus 8.2%.
Besides this, there is room for non-interest income to come in stronger than expected, particularly on the forex side, given a pick-up in trade activities. Should forex profits reach FY07 and FY08's levels of say RM250 million (our current forecast: RM223.2 million), we estimate a 1.4% upgrade in net earnings for FY10F, taking ROE to 15.1% - our fair value would be upgraded further to RM7.40/share.
Our scrutiny of RHBCap's detailed composition of net earnings indicates that its ROE target of 14.5% to 15% FY10F would be easily achievable and sustainable. This is inclusive of potential rights issue to fund its Indonesia acquisition. We have modelled in an ROE estimate of 14.9% FY10F (our forecast has factored in the rights issue). Our net earning is 10.9% above consensus' RM1,276.8 million FY10F.
Despite this, RHBCap's valuation of P/BV of 1.4 times has yet to catch up with its ROE potential. We believe RHB is one of the most underrated mid-cap banks, trading only at a P/BV of 1.4 times (much lower than sector P/BV of 1.9 times), but on track to deliver mid-teen ROE close to the sector average ROE of 15%.
We maintain our buy on RHBCap. Key re-rating catalysts are (a) meeting its KPI targets outlined for FY10F; and (b) the successful execution of its expansion in Indonesia. - AmResearch, March 29
This article appeared in The Edge Financial Daily, March 30, 2010.
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