RHB Capital firms up ROE and capital post internal shuffle
KUALA LUMPUR: Following the completion of RHB Capital Bhd’s (RHB Capital) internal reorganisation recently, the banking group’s return on equity (ROE) and capital position have been strengthened.
Analysts believed the internal reorganisation exercise has enabled the banking group to have a more efficient corporate structure.
With the completion of the rights issue, AllianceDBS Research Sdn Bhd (AllianceDBS Research) in a report yesterday said RHB Capital is at the last leg of its corporate restructuring, which should lead to a new lease of life for RHB Banking Group upon completion.
The research firm noted the proceeds from the rights issue will be used for the settlement of RHB Capital’s debt as well as housing three of its segments, RHB Investment Bank, RHB Islamic and RHB Insurance under the main operating entity, RHB Bank.
Subsequently, it observed that RHB Bank will then assume the listed status of RHB Capital, which is scheduled in July 2016.
AllianceDBS Research believed the removal of goodwill at RHB Capital (from the purchase of a 30 per cent stake in RHB Bank from Khazanah Nasional Bhd in 2007) and lower debt are the key developments to re-rate the banking group’s book value in 2016.
After a company’s briefing, the research firm said the company has set a modest target for 2016.
It gathered that the banking group is targeting a loan growth of eight per cent for 2016, slightly higher than the six per cent achieve in 2015 in the absence of lumpy repayments.
Nevertheless, the research firm noted the banking group’s net interest margin (NIM) will still be under pressure to grow this year.
On another note, the research firm believed RHB Capital’s noninterest income could be supported by its asset management business.
It estimated that the banking group’s lending cost should steadily rose closer to 40 basis points but non-performing loans (NPL) ratio should remained below two per cent.
Meanwhile, the research arm of TA Securities Holdings Bhd (TA Research) in another report said RHB Capital’s internal revamp is expected to strengthen the group’s ROE and capital ratios.
Soon after a company’s briefing, the research firm noted the banking group’s ROEs could be enhanced by some 30 basis points while proforma 2015 Common Equity Tier-1 (CET1) ratio would improve from 12 per cent and 16.5 per cent respectively, as at Dec 31, 2015 to 12.5 per cent and 17.2 per cent respectively.
Concurring with TA Research, the research arm of Hong Leong Investment Bank Bhd (HLIB Research) said RHB Capital’s internal restructuring exercise will result in accretive earnings and ROE arising from interest expense savings and improved capital ratios
Additionally, the research arm of Maybank Investment Bank Bhd (Maybank IB Research) in a report said it estimated a higher financial year 2016 (FY16) net profit of RM1.88 billion for RHB Bank group against RM1.78 billion currently, taking into account potential net interest savings of about RM101 million from its internal reorganisation exercise.
The research firm also projected an FY16 return on asset employed (ROAE) of nine per cent for RHB Bank group.
Nevertheless, most analysts were neutral or maintained their ‘hold’ recommendation on the banking group’s outlook.
They cited limited upside for the banking group’s share price and more clarify on its first quarter financial results which are expected to be released by the end of next month.