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RHB Cap to capitalise on loan growth and new EASY outlets

Posted on March 30, 2010, Tuesday

KUCHING: RHB Capital Bhd (RHB Cap) is expected to benefit from its loan growth and new EASY outlets going forward.

New Highs: RHB Cap is expected to benefit from the guided 15 per cent loan growth and 51 new EASY outlets.

New Highs: RHB Cap is expected to benefit from the guided 15 per cent loan growth and 51 new EASY outlets.

RHB Cap remained confident of its loan growth target of 15 per cent and its plan to introduce 51 new EASY outlets by the end of this year.

AmResearch Sdn Bhd (AmResearch) said in its research report that the loan growth of RHB Cap picked up significantly since its reorganisation in 2007.

In 2009, the loan growth came at 10.3 per cent while in 2008 the loan growth was 11.2 per cent higher from 1.2 per cent of 2007.

It was noted that the new growth areas included loans related to the government sector that made up four per cent of overall loans. The research house expected the growth for this area to remain strong going forward.

Beside government loans, auto loans grew 9.6 per cent year on year (y-o-y), while residential mortgage and non-residential grew by 13.6 and 31.3 per cent y-o-y.

On the other hand, it was noted that RHB Cap was planning to introduce 51 more EASY outlets by the end of this year.  So far the company has 31 outlets since the introduction in mid -2009.

RHB Cap indicated that the growth volume momentum for EASY had surpassed expectations by a wide margin. As a result, EASY would add to RHB’s franchise value.

Furthermore, net interest margin was expected to rise despite the new pricing strategy implemented in order to gain further market share in loan.

The company defended its net interest margin despite the slash in interest rates of 150 basis points between November 2008 and February 2009.

Given the rise in interest rates going forward, RHB Cap believed that net interest margin would not be badly affected even if it were to adopt a more aggressive pricing strategy.

Besides that, it was also reported that RHB Cap’s treasury division was recently turned into a business unit of its own, which indicated the upside to profits for its non-interest income.

Despite the treasury being considered as a standalone unit, the company assured that the transactions would be 100 per cent customer-backed with almost negligible risk of less than one per cent.

Furthermore, it was also reported that there was write-back potential following the restructuring of RM222 million lumpy loan loss provisions of 2009.

As a result, aged-property related non-performing loans (NPLs) under financial reporting standards (FRS) 139 of beyond five years could see some write-back as well, although the company did not provide further details on these.

On the other hand, RHB Cap was undergoing phase 3 ‘raise the bar’ of its transformation programme that included strategies to meet its vision as the best-run bank in Malaysia and ASEAN.

It was also said that the company was unperturbed by possible changes in the local domestic market landscape in particular to its market positioning even if there would be further domestic mergers and acquisitions.

RHB Cap decided not to proceed with possible bids for EON Capital Bhd (EON Cap) given the insignificant change to its market position.

On the other hand, the proposed acquisition of 89 per cent stake in Bank Mestika was on track.

RHB Cap was now awaiting final regulatory approval from Indonesia between April and May this year.

The company would undertake a rights issue of up to 361.1 million new rights shares with an attractive RM3.60 per share.

Target date for completion of the rights issue would be in mid-2010.

Although the realised forex profit for 2009 was affected by the global slowdown, the company guided for better outlook given recent pick-up in trade. As a result, the research house raised its realized forex profit estimates from RM202.9 million in 2009 to RM223.2 million in 2010.

RHB Cap maintained its return-on-equity target of 14.5 to 15 per cent and a net earnings target of RM1.4 billion for the financial year 2010.

The research house said that, RHB Cap was one of the most underrated mid-cap banks, trading at only price-to-book-value of 1.4 times which was lower than the sector’s weighted price-to-book-value of 1.9 times.

As a result, the target price for the group was tweaked upward from RM7.10 to RM7.20 per share.

However, it was noted that meeting its key performance indicator for 2010 and successful execution of its Indonesia expansion would were key re-rating catalysts.

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