January 18, 2011

RHBCAP - Ramping up distribution channels

Stock Name: RHBCAP
Company Name: RHB CAPITAL BHD
Research House: AMMB

RHB Capital Bhd
(Jan 18, RM8.60)
Maintain buy at RM8.60 with fair value of RM9.70)
: During our company visit on Monday, RHB Capital (RHB Cap) highlighted its plans for its new shared banking services tie-up with Pos Malaysia.

Under the first phase, 21 selected Pos Malaysia outlets in the Klang Valley and Negri Sembilan had been identified to offer the services. RHB Cap intends to offer this service in up to 300 of the approximately 600 Pos Malaysia outlets nationwide.

RHB Cap will also place 90 to 100 of its EASY banking kiosks in selected Pos Malaysia outlets.

We are positive on this, as the operating model for the shared banking services is low-cost with no fixed overheads. RHB Cap is expected to incur only variable costs based on transaction fees.

RHB Cap currently has 197 conventional branches, while as at end-December 2010 it had about 112 EASY branches.

In total, RHB now has about 309 branches and EASY outlets. With the Pos Malaysia tie-up, RHB Cap is on track to more than double its distribution channels by year-end. As a comparison, Maybank has 364 branches, CIMB 323 and Public Bank 248.

To put this in perspective, RHB Cap's current share of conventional banking branches is 9.8%. If we are to simplistically take into account just the existing EASY outlets and planned expansion into the 300 Pos Malaysia outlets, its market share of distribution channels will increase to 23%.

With better distribution channels, we foresee RHB Cap closing the gap in terms of its market share of deposits and loans. EASY's main selling product is still Amanah Saham Bumiputra financing, with the market share of this segment at about 7% currently.

RHB Cap's overall market share of loans is estimated at 9.4% while its market share of overall deposits is 7.8%, current deposits 9.9% and savings deposits 5.4% as at end-September 2010.

RHB Cap's share price has performed well over the last year, and we remain positive on RHB Cap's prospects. We have not yet included possible improvement in current account and savings account,'' and selected loan segments arising from its expanded distribution channels.

The company also says it is bullish on the opportunities arising from the government's Economic Transformation Programme. We maintain 'buy' on RHB Cap with fair value of RM9.70. ' AmResearch, Jan 18


This article appeared in The Edge Financial Daily, January 19, 2011.

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