CIMB Research retains Add for RHB Capital

KUALA LUMPUR: CIMB Equities Research is retaining its Add for RHB Capital but with a lower target price of RM8.50 compared with the previous RM9.35.

It said on Tuesday despite the disappointing 3Q15 results, RHB Capital remains an Add and its top pick of the sector as it envisages stronger EPS growth in FY16.

“The potential re-rating catalysts include 1) the benefits from the implementation of the IGNITE 17 transformation programme, 2) cost savings from Career Transition Scheme (CTS) from FY16 onwards, and 3) the drive for regional expansion in the longer term. Its valuations are attractive with an FY17 P/E of only 7.7 times and price-to-book value (P/BV) of 0.7 times even after the EPS cuts,” it said.

CIMB Research said RHB Capital’s 9M15 net profit was 12.8% below its full-year forecast and 10.2% below consensus after adjusting for the CTS expenses.

“The variance mainly came from the weaker-than-expected topline growth. As a norm, no dividend was declared in the 3Q15,” it said.

The research house reduced its FY15-17 EPS forecasts by 10%-11% and discount dividend model-based target price from RM9.35 to RM8.50 due to the 11%-13% reduction in the projected non-interest income.

The group’s 9M15 net profit fell 23% on-year partly due to the one-off CTS (RHB Capital’s version of mutual separation scheme) expense amounting to RM309mil booked in 3Q15.

Excluding this, the decline in 9M15 net profit would have narrowed to 8% on-year. Another dampener for 9M15 earnings was the 2.3% on-year drop in net interest income, as its healthy loan growth was more than offset by the 14bp on-year contraction in net interest margin to 2.16% in 9M15. 

Following the weakening in 2Q15, loan growth picked up from 9.2% on-year in June 2015 to 10% on-year in September 2015, close to the industry’s rate of 9.7%.

“The improvement mainly came from the smaller contraction in loans classified as ‘others’. For the major loan segments, property loans still increased swiftly at 23%-27% on-year in September 2015, but the decline in auto loans widened from 7% on-year in June 2015 to 11.8% on-year in September 2015.

“Besides, working capital loans advanced by a healthy rate of c.14% in June-September 2015. The group’s gross impaired loan ratio fell from 2.05% in Jun 15 to 1.94% in September 2015, but the loan loss coverage was sustained at 56.5% in June-September 2015, the lowest among the local banks,” said the research house.

Source: http://www.thestar.com.my/business/business-news/2015/12/01/cimb-research-retains-add-for-rhb-capital/?style=biz