RHB Capital Bhd
(Sept 13, RM7.15)
Maintain buy at RM7.10 with target price of RM8.30: Seventy RHB Easy outlets have been opened since the initial rollout in July 2009, and RHB Capital targets 120 outlets by end-2010 and a total of 400 by 2012. These highly scaleable distribution channels are aimed at attaining coverage and speed-to-market in the consumer segment. We expect net profit to grow at two-year CAGR of 15%, supported by strong loan growth of 12% to 15% for FY2010-11F (above industry average of 12%), led by mortgage, hire purchase and ASB loans.
A selldown of EPF’s stake to 40% (from 54%) by mid-2011 would raise free float and liquidity. RHB Capital’s respectable return-on-equity (ROE) profile of 15% to 16%, on par with the industry average of 16% coupled with its current cheap valuation — makes it an attractive M&A target. We think that any M&A activity for RHB Capital would add premium to its valuations.
As it stands, RHB Capital is still the cheapest stock in our large-cap universe at 1.4 times FY2011 P/BV against the sector average of two times. Our target price of RM8.30 is based on the Gordon Growth Model with the following assumptions: 15.5% ROE, 11.2% cost of equity and 4.6% long-term growth rate. We think there is a lot going for RHB Capital — having strengthened its loans and deposits franchise, it is now expanding its distribution capabilities via RHB Easy. It has also regained a footing in the capital market arena — market share in equity issues grew to 17% (ranked third) as at August against 8% (ranked eighth) in 2009. — HwangDBS Vickers Research, Sept 13
This article appeared in The Edge Financial Daily, September 14 2010.
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