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Thursday, December 23, 2010

RHB - Pushing the Boundaries (OSK)

Our recent meeting with management reinforces our belief that the group is on track to deliver ROEs in excess of 14%, backed by surprisingly strong loans growth exceeding 20% and stable asset quality. The company is our top mid cap banking pick with ROE generation at the upper end of the industry average, while its current FY11 PBV of 1.72x is at a discount to the industry’s 1.86x. EPF’s commitment to further cut its stake by another 9% will further enhance the stock’s liquidity, which has been cited as a key reason for its below industry valuations.

Maintain BUY, with a Gordon Growth derived TP price of RM9.56, (1.92x PBV, ROE: 14.8%, COE: 9.5% and growth rate of 4.0%). The stock is cheap as it is currently trading at an implied FY11 PER of only 11.7x, despite having outperformed the broader market by 44.8% YTD.

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