Bursa Alert
Global Market
NewsRHBCap dampened by higher LLP
Page 1 of 1
RHBCap dampened by higher LLP
by Cals Fri 31 May 2013, 12:07
RHBCap dampened by higher LLP
Business & Markets 2013
Written by Alliance Research
Friday, 31 May 2013 11:11
A + / A - / Reset
RHB CAPITAL BHD []
(May 30, RM8.75)
Maintain buy at RM8.85 with a revised target price of RM10.14 (from RM10.04): RHBCap’s results for the first quarter ended March of 2013 financial year (1QFY13) came in below our and market expectations. Stripping out integration cost of RM18.2 million, the group’s core earnings contracted by 13.8% year-on-year (y-o-y) to RM375.4 million, accounting for 16.7% of house and 18.9% of consensus full-year estimates. The lower earnings were mainly dampened by a 2.4 times y-o-y increase in its loan loss provisions (LLP) to RM154.9 million in 1Q.
The key variances between the group’s earnings and our estimates are lower top line growth due to the slow start in 1Q and higher than expected LLP.
Gross loans inched up by 7.1% on an annualised basis to RM113.5 billion, lower than management and our loan growth target of 12%. The sluggish overall loan growth was mainly due to subdued domestic loan growth of 6.8% on an annualised basis, below the annualised industry average loan growth of 8.4%. Nonetheless, with the dissipating domestic political uncertainties post-election, we are optimistic the group’s loan growth momentum will pick up in the coming quarters. Furthermore, we understand that loan applications and approvals by RHBCap were higher than industry in 1Q, indicating strong loan pipelines going forward. We are maintaining our 12% gross loan growth target for RHBCap.
Customer deposits contracted by 2.2% quarter-on-quarter (q-o-q), mainly due to withdrawal of fixed deposits by selective corporates and government-related bodies. Nonetheless, the group’s current account savings account (Casa) continues to gain traction, increasing 2.2% q-o-q, supported by cross-selling of its products and marketing campaigns. The Casa component of its total deposits has increased from 21.1% in FY12 to 22.2% in 1QFY13.
Loan-to-deposit ratio (LDR) edged up from 80.6% last December to 84% in 1QFY13, as a result of its loan growth and contraction in customer deposits on a q-o-q basis.
Net interest margin (NIM) dropped by one basis point (bps) q-o-q to 2.34% in 1Q. We understand that the stable NIM was mainly supported by lower cost of funds and stabilising asset yields.
Cost-to-income ratio increased from 47.5% in FY12 to 52.7% in 1QFY13, mainly due to higher cost for personnel retention and high cost structure from the acquisition of OSK Investment Bank (OSKIB) not being met by corresponding strong income growth. In anticipation of strong top line growth in the coming quarters and management’s focus on cost discipline, we are optimistic that cost-to-income ratio will dip below 50%. We are maintaining our cost-to-income ratio (excluding integration cost) estimates at 46.1% for FY13.
The credit charge off rate for 1QFY13 increased to 55 bps from 19 bps in 1QFY12.
Management guided that the group has provided a RM76 million individual allowance (of the total RM79 million individual allowance recorded in 1QFY13) for a particular corporate. We understand that the group’s total loans related to this particular corporate are about RM100 million. As such, there remains about RM24 million of potential loan loss which has not been provided for.
In addition, collective allowance increased 6.5 times y-o-y to RM83.9 million in 1QFY13. We understand the bulk of the collective allowance provided was due to payments in arrears by selective corporates. Nonetheless, management has seen these payments coming through in April and May, and believes that substantial collective allowance provided will be written back in 2Q.
We gather that management has done a thorough review of its loan portfolio and determined that these cases are isolated and do not compromise the overall asset quality of its loan portfolio.
RHBCap completed the acquisition of OSKIB on Nov 9 last year. Management has since been actively engaged in the integration process and has declared legal Day 1 on April 13 this year. Management maintained it is on track to complete the entire exercise by 4Q to operate on a single platform.
Management remains optimistic about the potential synergistic benefits of RM324 million to be yielded from this acquisition exercise from FY13 to FY15. We are positive the pace of synergy realisation will pick up from 2Q in anticipation of strong capital market transactions and investment banking pipelines.
RHBCap announced a revised deal in January to acquire a lower stake of 40% in Bank Mestika at a purchase consideration of RM651.1 million.
Management is still awaiting regulatory approvals on the proposed acquisition of Bank Mestika. We understand that should it not hear from the Indonesian regulator by end-June, RHBCap may not proceed with the proposed acquisition.
Although we remain positive that the group’s top line growth could be boosted by the accelerated disbursement of Economic Transformation Programme (ETP) related corporate loans and higher contributions from the investment banking operations, we are lowering our FY13 earnings forecast to factor in higher than expected credit cost.
We have cut our FY13 core earnings per share forecast by 11.8%, upon raising our credit cost estimates to 34 bps (from 20 bps previously). The higher credit cost is to conservatively account for an additional RM105 million individual allowance and higher collective allowance.
We maintain our FY14 earnings estimates while introducing our FY15 numbers.
We revise our target price from RM10.04 to RM10.14 to reflect the combined effects of: (i) rollover of our valuation from FY13 to FY14; and (ii) trimming our sustainable return on equity assumption to 13.6% from 14.1%.
Despite its disappointing 1Q results, we are optimistic the group’s earnings momentum will pick up with the accelerated disbursement of ETP-related corporate loans and higher contributions from the investment banking operations. We continue to view RHBCap as one of the prime beneficiaries of rising business loans stemming from the rolling out of Entry Point Projects under the ETP. Maintain “buy”. — Alliance Research, May 30
This article first appeared in The Edge Financial Daily, on May 31, 2013.
Business & Markets 2013
Written by Alliance Research
Friday, 31 May 2013 11:11
A + / A - / Reset
RHB CAPITAL BHD []
(May 30, RM8.75)
Maintain buy at RM8.85 with a revised target price of RM10.14 (from RM10.04): RHBCap’s results for the first quarter ended March of 2013 financial year (1QFY13) came in below our and market expectations. Stripping out integration cost of RM18.2 million, the group’s core earnings contracted by 13.8% year-on-year (y-o-y) to RM375.4 million, accounting for 16.7% of house and 18.9% of consensus full-year estimates. The lower earnings were mainly dampened by a 2.4 times y-o-y increase in its loan loss provisions (LLP) to RM154.9 million in 1Q.
The key variances between the group’s earnings and our estimates are lower top line growth due to the slow start in 1Q and higher than expected LLP.
Gross loans inched up by 7.1% on an annualised basis to RM113.5 billion, lower than management and our loan growth target of 12%. The sluggish overall loan growth was mainly due to subdued domestic loan growth of 6.8% on an annualised basis, below the annualised industry average loan growth of 8.4%. Nonetheless, with the dissipating domestic political uncertainties post-election, we are optimistic the group’s loan growth momentum will pick up in the coming quarters. Furthermore, we understand that loan applications and approvals by RHBCap were higher than industry in 1Q, indicating strong loan pipelines going forward. We are maintaining our 12% gross loan growth target for RHBCap.
Customer deposits contracted by 2.2% quarter-on-quarter (q-o-q), mainly due to withdrawal of fixed deposits by selective corporates and government-related bodies. Nonetheless, the group’s current account savings account (Casa) continues to gain traction, increasing 2.2% q-o-q, supported by cross-selling of its products and marketing campaigns. The Casa component of its total deposits has increased from 21.1% in FY12 to 22.2% in 1QFY13.
Loan-to-deposit ratio (LDR) edged up from 80.6% last December to 84% in 1QFY13, as a result of its loan growth and contraction in customer deposits on a q-o-q basis.
Net interest margin (NIM) dropped by one basis point (bps) q-o-q to 2.34% in 1Q. We understand that the stable NIM was mainly supported by lower cost of funds and stabilising asset yields.
Cost-to-income ratio increased from 47.5% in FY12 to 52.7% in 1QFY13, mainly due to higher cost for personnel retention and high cost structure from the acquisition of OSK Investment Bank (OSKIB) not being met by corresponding strong income growth. In anticipation of strong top line growth in the coming quarters and management’s focus on cost discipline, we are optimistic that cost-to-income ratio will dip below 50%. We are maintaining our cost-to-income ratio (excluding integration cost) estimates at 46.1% for FY13.
The credit charge off rate for 1QFY13 increased to 55 bps from 19 bps in 1QFY12.
Management guided that the group has provided a RM76 million individual allowance (of the total RM79 million individual allowance recorded in 1QFY13) for a particular corporate. We understand that the group’s total loans related to this particular corporate are about RM100 million. As such, there remains about RM24 million of potential loan loss which has not been provided for.
In addition, collective allowance increased 6.5 times y-o-y to RM83.9 million in 1QFY13. We understand the bulk of the collective allowance provided was due to payments in arrears by selective corporates. Nonetheless, management has seen these payments coming through in April and May, and believes that substantial collective allowance provided will be written back in 2Q.
We gather that management has done a thorough review of its loan portfolio and determined that these cases are isolated and do not compromise the overall asset quality of its loan portfolio.
RHBCap completed the acquisition of OSKIB on Nov 9 last year. Management has since been actively engaged in the integration process and has declared legal Day 1 on April 13 this year. Management maintained it is on track to complete the entire exercise by 4Q to operate on a single platform.
Management remains optimistic about the potential synergistic benefits of RM324 million to be yielded from this acquisition exercise from FY13 to FY15. We are positive the pace of synergy realisation will pick up from 2Q in anticipation of strong capital market transactions and investment banking pipelines.
RHBCap announced a revised deal in January to acquire a lower stake of 40% in Bank Mestika at a purchase consideration of RM651.1 million.
Management is still awaiting regulatory approvals on the proposed acquisition of Bank Mestika. We understand that should it not hear from the Indonesian regulator by end-June, RHBCap may not proceed with the proposed acquisition.
Although we remain positive that the group’s top line growth could be boosted by the accelerated disbursement of Economic Transformation Programme (ETP) related corporate loans and higher contributions from the investment banking operations, we are lowering our FY13 earnings forecast to factor in higher than expected credit cost.
We have cut our FY13 core earnings per share forecast by 11.8%, upon raising our credit cost estimates to 34 bps (from 20 bps previously). The higher credit cost is to conservatively account for an additional RM105 million individual allowance and higher collective allowance.
We maintain our FY14 earnings estimates while introducing our FY15 numbers.
We revise our target price from RM10.04 to RM10.14 to reflect the combined effects of: (i) rollover of our valuation from FY13 to FY14; and (ii) trimming our sustainable return on equity assumption to 13.6% from 14.1%.
Despite its disappointing 1Q results, we are optimistic the group’s earnings momentum will pick up with the accelerated disbursement of ETP-related corporate loans and higher contributions from the investment banking operations. We continue to view RHBCap as one of the prime beneficiaries of rising business loans stemming from the rolling out of Entry Point Projects under the ETP. Maintain “buy”. — Alliance Research, May 30
This article first appeared in The Edge Financial Daily, on May 31, 2013.
Cals- Administrator
- Posts : 25277 Credits : 57721 Reputation : 1766
Join date : 2011-09-08
Location : global
Comments : “My plan of trading was sound enough and won oftener that it lost. If I had stuck to it Iâ€
d have been right perhaps as often as seven out of ten times.â€
Stock Exposure : Technical Analysis / Fundamental Analysis / Mental Analysis
Similar topics» RHBCap, OSK get SC nod for merger
» RHBCap merger still possible
» RHBCap could see a slow start
» UEM Land a top pick of RHBCap
» Highlight RHBCap likely to buy CIMB’s biz
» RHBCap merger still possible
» RHBCap could see a slow start
» UEM Land a top pick of RHBCap
» Highlight RHBCap likely to buy CIMB’s biz
Page 1 of 1
Permissions in this forum:
You cannot reply to topics in this forum|
|
|