A capital reform idea
RHB Capital Bhd
(Sept 9, RM7.10)
Maintain outperform at RM7.02 with target price of RM9: We resume coverage on RHB Capital with an unchanged outperform rating.
The stock also replaces AMMB as our top pick for the sector. We are upping our EPS forecasts by 12%-19% for higher loan growth and lower provisions.
This, plus a rollover of our target price to end-CY11, lifts it from RM7.60 to RM9, still based on a 10% premium over its DDM value. Our revised target price implies compelling upside of 28.2%. Factors that could catalyse the stock include its (1) bright earnings prospects, (2) group revamp, (3) good exposure to vibrant capital markets, (4) above-industry loan growth, (5) stronger overseas growth prospects and (6) attractive valuations.
RHB Capital’s strong earnings over the past two-three quarters underpin our positive take on the group’s earnings outlook. We are projecting strong net earnings growth of 15%-21% for FY10-12 on the back of a (1) 7%- 12% rise in non-interest income, (2) 11%-20% expansion of net interest income, and (3) stable loan-loss provisioning.
RHB Capital is one of the cheapest stocks in our universe of Malaysian banks, with a CY11 P/E of only 8.9 times versus 10.8 times for the sector. Its valuation is lower than those of Maybank (P/E of 12.4 times), Public Bank (12.3 times) and AMMB (10.5 times).
We are upping our EPS forecasts by 12%-19% after raising our loan growth projection from about 9% to 11%-15% and reducing loan-loss provisioning by 29%-31%. We also roll forward our DDM-based target price to end-CY11, leading to a rise in our target price from RM7.60 to RM9, still pegged to a 10% premium over its DDM value. — CIMB Research, Sept 9, - Written by Kay
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