RHB Capital Bhd
(April 27, RM7.86)
Maintain add with target price of RM10.50: Over the weekend, The Edge weekly featured an interview with the current RHB Capital group managing director Kellee Kam who is leaving the group on May 4. The key message was that the group will not embark on mergers and acquisitions (M&A) in the near term given the unfavourable environment. Instead, it will focus on keeping its house in order by improving its cost and capital efficiencies as well as fine-tuning its business models and processes.

The only new information we gathered from the article is the expected revision of its target for overseas contributions from 30% to 20%. This did not come as a surprise as its bid to acquire Bank Mestika in Indonesia was called off last year and it currently does not have any M&A plans.

The above would be slightly negative as it spells a slower pace in regional expansion. However, the group is still adamant about building a full-fledged Asean network in the longer term, eyeing entries into Indonesia and the Philippines. Hence, the earnings drivers in the near term will come from: (i) organic growth, especially given the robust loan growth of 17% in 2014; and (ii) benefits from its IGNITE 17 transformation programme.

We are positive that with the programme, the group aims to improve the areas that it is traditionally weak in, such as Islamic banking, small and medium enterprises, Treasuries and wealth management. The focus has borne fruit, with a total value of RM425 million (in  additional revenue and cost/capital savings) captured in 2014. We advise investors to stay invested in view of the group’s bright earnings prospects, arising from its swift loan and fee income growth. — CIMB Research, April 26

This article first appeared in The Edge Financial Daily, on April 28, 2015.