RHB Capital - Resilience surprise on the upside HOLD

Stock Name: RHBCAP
Company Name: RHB CAPITAL BHD

Research House: AMMB

Price Call: HOLD

Target Price: 8.20

We maintain RHB Capital Bhd (RHB Cap) at HOLD, with a higherfair value of RM8.20/share (vs. RM6.90 previously). This is pegged to a fairP/BV of 1.5x (1.3x previously), based on a higher ROE of 13.2% (12.2%previously) for FY12F. 

RHB Cap's 4QYF11 net earnings fell 7.4% QoQ (largely due tohigher loan loss provision). With this, FY11 net earnings came in at 4.1% belowour estimate and 3.0% below consensus forecast of RM1,548mil.

Gross loans growth was at 16.2% in FY11, ahead of its earliertarget of 15%. NIM was 2.57% in FY11 compared with 2.74% in FY10, with thecompression largely caused by a higher cost of funding due to its heavierreliance on the more expensive fixed deposit segment. Nevertheless, netinterest income managed to grow 4.3% overall in FY11. Non-interest incomeposted a commendable growth of 3.7% YoY, considering that there was anunrealised loss relating to its interest rate swap contracts, which came up toRM76mil in total in FY11, a lot less than originally anticipated. 

More importantly, the company has largely provided for its exposureto one particular CLO, which is positive and should remove one of the lingeringconcerns over RHB Cap. In addition, credit costs rose to 40bps in 4QFY11 (3QFY11:13bps), which was due partly to weaknesses in selected SME segments. 

Gross impaired loans were reduced by 3.2% QoQ, the fifth consecutivequarter of QoQ improvement, aided partly by good recoveries. Gross impairedloans ratio was thus reduced to 3.4% in 4QFY11 from 3.7% in 3QFY11. Loan losscover was relatively steady at 73.8% in 4QFY11 from 75.1% in 3QFY11. 

We consider its asset quality to have surprised on  the upside, and more importantly, we arefurther reassured that the company has not experienced any major deteriorationin asset quality over the past three months. Based on this, we have revisedupwards our earnings by 13% for FY12F. This is based on a lower credit costs assumptionof 61bps (vs. 80bps previously). The company indicated that credit costs willlikely be better than FY11's 36bps. 

The company also indicated that its planned acquisition of BankMestika is now scheduled for completion by mid-2012. We have not yet reflectedthis in our forecasts. The company's new ROE guidance for FY12F is 14%,including Bank Mestika. We maintain RHB Cap at HOLD.     

Source: AmeSecurities