Stock Name: RHBCAP
Company Name: RHB CAPITAL BHD
Company Name: RHB CAPITAL BHD
| Research House: OSK | Price Call: BUY | Target Price: 9.90 |
The group's FY11 results were largely in line with consensusand our full-year estimates. However, its 4Q11 sequential earnings were hit bylumpy exceptional provisions for its CLOs, thus raising q-o-q impairment losseson securities by 212%. Sequential pre-provision operating profit growth wascommendable at 15.6% q-o-q, driven by stronger trading income and Islamicbanking income. The stabilization in NIMs and absence of one-off lumpy CLOprovisions in FY12 provide a more promising profit growth outlook for FY12.Maintain FV of RM9.90 based on 1.76x FY12 P/BV, 14.1% ROE. Maintain BUY.
In line. Thegroup's FY11 earnings were largely in line with our full-year forecast, with FY11earnings representing 95.1% of consensus and 96.1% of our full-year forecast. Theslight shortfall (-4% deviation from our earnings) was due to a lumpy spike inq-o-q impairment of its CLOs with an existing carrying value of RM87m securedagainst certain collaterals. FY11 earnings rose at a rather subdued 5.7% y-o-y,while preprovision operating profit posted a marginal contraction of 0.2%y-o-y.
Funding and staffcost were key drags on FY11 performance.Key earnings dampeners included: (i) funding cost pressure from very aggressiveand expensive fixed deposit growth (+28% y-o-y) which pressured net interestmargins (NIMs), and this resulted in a rather lacklustre 4.2% net interestincome growth despite the robust 16.8% loan growth, (ii) 23.5% increase in staff cost due to the undertaking of various staff retention and optimizationmeasures, and (iii) RM65.8mmarked-to-market losses on interest rate derivative instruments to hedge itsfixed rate loans. Among the key earnings drivers were: (i) promising growth traction on Islamicbanking operations (+31.5% y-o-y and +20.1% y-o-y), and (ii) 21.1% decline inloan loss provision which brought the fullyear credit cost down to 34bps vs50bps in FY10.
Positive flip sides. The aggressive deposit gathering strategy inFY11 resulted in a 17bps compression ofNIMs. On the flip side, this has helped lower the group's loan-todepositratio (LDR) from 88.6% to a relatively comfortable 84.0%and thus, easing pressures on funding cost in FY12. With the group's optimalLDR set at just under 90%, the current 84% LDR provides a fair degree ofheadroom to slowdown its deposit growth relative to loans growth and thus,enabling it to sustain its current NIMs in FY12 compared to the steep NIMcompression in FY11.
Source: OSK188
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