, Malaysia

RHB Capital's MYR275m revenue synergy target won't happen soon: Nomura

Blame it on unpredictable nature of capital markets.

According to Nomura, the stock currently trades at a FY13F P/BV of just 1.2x, suggesting the dilutive effect of the OSK acquisition has been priced in the shares. Still, Nomura thinks management’s revenue synergy target of MYR275mn may take time to realise given the unpredictable nature of capital markets. 

Here's more from Nomura:

The implementation of the DRP programme, the improvement in asset quality and the equity funding of OSK’s investment banking business have resulted in a much healthier CET1 ratio of 9.0%.

Funding of the proposed Bank Mestika purchase is uncertain, but we estimate that RHBC could still fund it through a higher earnings retention rate (via DRP) now that the purchase cost of a 40% stake is lower.

Operationally, RHBC benefitted from a benign NPL environment and loan loss provisions/RWA has improved to 0.2% this year from an average of 0.6% in the previous three years.

Catalyst: Removal of election overhang, 2H13F OPR hike
Malaysia banks could see a boost post general elections once the political risk premium subsides. Another potential catalyst is a 50bp OPR hike that we expect in 2H13F, which in our view is beneficial for banks’ NIMs.

TP raised to MYR8.70 on rolling forward to FY13F valuations
We have incorporated OSK’s full-year contribution to net earnings in FY13F. We expect RHBC’s ROEs to be diluted to 11.8% by FY14F from 14.0% in FY11 as a result of the OSK acquisition. We have also assumed that RHBC’s credit cost will normalise back to 31bps by FY14F from 10bps in FY12F. Our Gordon- rowth based TP assumes a sustainable ROE of 11.8%, cost of equity of 9.3% and terminal growth of 2%. 

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