KUALA LUMPUR: CIMB Equities Research has upgraded RHB Capital from Neutral to Outperform and raised the target price from RM9.50 to RM10.50.
It said on Thursday the higher target price was due to the potential catalysts of (1) attractive valuations, (2) potential investment banking market share gains, and (3) the possibility of being taken private by the Employees Provident Fund (EPF).
CIMB Research said that in anticipation of stronger traction in the investment banking business, it raised its assumed growth rate in our DDM model from 6% to 7%, leading to an increase in our target price (COE of 11.8% and LT growth of 5%).
It also said RHB Cap's management had stated the integration with OSK was progressing as planned.
For the five months ended March 2013, the group has achieved total revenue synergies of RM40mil, ahead of the target of RM63mil for the 12 months ended November 13. The integration costs will also be RM20m below the targeted RM86mil.
As for the loan default by AE Models Holdings, it said this could lead to additional provisioning for RHBCap. It could, together with the slow investment banking deal flow, lead to another weak quarter for RHB in Q2, 2013.
"However, we expect a strong rebound in net earnings growth to 13.8% in FY14, underpinned by (1) a 30.3% drop in loan loss provisioning, and (2) better traction for investment banking income," it pointed out.
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