AmWatch, 2 Mar 2015 - RHB Capital : Surpassing expectations in FY14 BUY, 2 Mar 2015 (PART 1)

TOCK FOCUS OF THE DAY

RHB Capital : Surpassing expectations in FY14      BUY

We upgrade RHB Capital Bhd to BUY from HOLD, with a fair value of RM9.30/share (from RM9.50/share previously, which was based on possible merger scenario). Our fair value is now based on an estimated ROE of 11.0% (previously 10.7%) for FY15F, leading to a fair P/BV of 1.2x.  RHB Cap FY14 net earnings surpassed our forecasts by 7.3% and consensus forecast by 1.4%. The main variances to our forecast were the better-than-expected non-interest income line, as well as the low loan loss provision from good recoveries. RHB Cap’s latest set of results indicates strong revenue growth lines and ongoing good momentum from all divisions.

The good FY14 results have prompted us to upgrade our net earnings for FY15 by 8.5%. This leads to a higher ROE of 11.0%, close to the company’s newly articulated ROE target of 11.5%. Our fair value thus works out to RM9.30/share, based on a fair P/BV of 1.2x. The company has confirmed that it is likely to be embarking on some form of capital raising exercise in the near term, and hopes to finalise the details in three months.

The latest 4QFY14’s group CET1 ratio had increased substantially to 9.8%, from 9.1% in 4QFY14. Thus, the potential size of the rights issue may now be only RM1.4bil based on our estimates. With the rights issue, our ROE forecast will be diluted down to 10.7% from 11.0% currently. This leads to a fair P/BV of 1.1x or RM8.70/share, still a decent upside from the current level.  Our book value is RM7.96/share with the rights issue, not much lower than the current projected RM8.09/share. The stock is now trading at less than 1x forward P/BV for FY15x, which is too low to resist, in our view.

Others :

MBM Resources : Shifting into sixth gear              BUY

Eastern & Oriental : Stronger profit recognition in 4Q      BUY

Jaya Tiasa : Looking beyond; inflexion point in FY16F        BUY

Hock Seng Lee : FY14 hurt by lower margins         BUY

CIMB Group : Four big positive indications from 4Q results           BUY

Carlsberg Brewery : FY14: Beats expectations     BUY

APM Automotive : Heading into a counter cyclical FY15F                BUY

Alam Maritim : Earnings impacted by lower utilisation rate HOLD

Lion Industries : Challenges remain in 2Q              HOLD

KPJ Healthcare : Improving margins on higher revenue  HOLD

Al-Aqar Healthcare : Stable rental income             HOLD

Star Publications : Challenging outlook ahead      HOLD

Kulim (M) : Declares special dividend of 37.65 sen/share               HOLD

IJM Plantations : Margin enhancement in 3QFY15             HOLD

Supermax Corporation : FY14 earnings disappoint             HOLD

TH Plantations : In the red in 4QFY14       SELL

Banking Sector : Foreign holdings in MGS rose in January 2015 (MGS)      NEUTRAL

Banking Sector  : Yet another new recent high for industry LDR (LRD)      NEUTRAL

QUICK TAKES

Plantations Sector (1) : Newsflow for week 23-27 February          NEUTRAL

Plantations Sector (2) : Key takeaways from IndoAgri’s Conf Call                NEUTRAL

NEWS HIGHLIGHTS

Media Sector : Adex contracts 5% in Jan to RM1bil

Oil & Gas Sector : Petronas braces for rough year due to low oil prices

Automotive Sector : Toyota saw its sales plunge in January, falling below Honda and even Nissan

DISCLAIMER:

The information and opinions in this report were prepared by AmResearch Sdn Bhd. The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of AmResearch Sdn Bhd may from time to time have a position in or with the securities mentioned herein. Members of the AmInvestment Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice.