You Must Know These 8 Things About RHB Bank Bhd

It was the early 20th century.

At that time, Chinese migrants have settled down in British-ruled Peninsula Malaya and Singapore, building thriving enterprises, amassing a fortune for themselves. In those days, Chinese businessmen could obtain financing from foreign banks. However, it was inconvenient for some of these businessmen as they could not converse in English.

As such, there was a need to set up Chinese banks to cater to the financing needs of these Chinese businessmen. This led to the establishment of Kwong Yik (Selangor) Banking Corporation (Kwong Yik) on 15 July 1913. It was the first Chinese or should I say ‘Cantonese’ bank to be set up in the Peninsula. This bank has proven to be resilient as it survived the Japanese Occupation during the World War 2 in the early 1940s.

In 1968, Malayan Banking Bhd (Maybank) has acquired 30% stake in Kwong Yik. Subsequently, in 1970, Maybank has increased its stake in Kwong Yik to 51.15%. It was an asset to Maybank until the year 1993 when Rashid Hussain Bhd purchased the entire Maybank’s stake in Kwong Yik.

Since then, the bank has undertaken several major merging exercises. This includes DCB Bank in 1993, Sime Bank in 1999, Bank Utama Bhd in 2003, and OSK Investment Bank in 2012. Today, RHB Bank Bhd has grown into the fourth largest integrated financial services group in Malaysia. As I write, RHB Bank Bhd is worth RM 19.0 billion in market capitalization.

Here, I’ll cover 9 quick things you need to know about RHB Bank Bhd before you invest.

#1: Stock Symbol

1

Ticker Symbol: KLSE: RHBBANK / KLSE: 1066
Market Capitalization: RM 19.0 Billion (20 November 2017)

Share Price: RM 4.73 (20 November 2017)

Sector: Finance

Syariah Compliant: No

#2: The Business

Presently, RHB Bank Bhd derives bulk of its income from four main business divisions. They include:

  1. Group Wholesale Banking
    This division is involved in 5 major segments. They are Investment Banking, Corporate Banking, Group Treasury and Global Markets, Asset Management and Private Equity. In 2016, this division has made RM 2.60 billion in total income and RM 1.41 million in PBT. Thus, it is the largest contributor of profits to RHB Bank Bhd.
  2. Group Retail Banking
    It offers consumer loans which include home loans, hire purchase, ASB financing, personal loans, credit card loans, and current and saving accounts, fixed deposit accounts to individual customers. In 2016, this division has made RM 2.22 billion in total income and RM 913.2 million in profits before tax (PBT), making it the 2nd largest contributor of profits to RHB Bank Bhd.
  3. Group Business & Transaction Banking
    It offers loans and financing solutions, deposits, cash management solutions, trade finance and services to small & medium enterprises (SMEs) and Family-owned Enterprises. In 2016, this division has made RM 970.3 million in total income and RM 446.6 million in PBT, ranking third in terms of profit contribution to RHB Bank Bhd.
  4. Group Shariah Business
    This segment is carried out by RHB Islamic Bank Bhd. It offers a wide range of Islamic financial services to both individual and corporate customers in Malaysia. In 2016, this division has made RM 754.4 million in total income and RM 431.7 million in PBT, ranking fourth in terms of profit contributions to RHB Bank Bhd.

#3: The Financials

Overall, RHB Bank Bhd has increased its total income from RM 4.83 billion in 2012 to RM 6.19 billion in 2016. This is due to continuous growth in net interest income, income from RHB Islamic Bank, fee and commission based income during the period.

RHB Bank Bhd has maintained its shareholders’ earnings at RM 1.5 billion – RM 2.0 billion a year over the last 5 years. This is because RHB Bank Bhd has incurred higher impairment losses on its loans, advances and financing assets which had effectively cancelled out the continuous growth reported above.

Source: Annual Reports of RHB Bank Bhd

#4: Aspirations

RHB Bank Bhd is embarking on its IGNITE 2017 initiatives to becoming a leading multinational financial services group by 2020. It aspires to derive as much as 40% revenues from its international operations while propelling its position to be among the top 3 banking groups in Malaysia.

#5: Major Announcements

On 22 August 2017, RHB Bank Bhd has ended its negotiations with AMMB Holdings Bhd on the proposed merger of the two banking groups as they are not able to reach an agreement on mutually acceptable terms and conditions of the proposed merger.

#6: Risks

RHB Bank Bhd has identified several risks which are inherent to the banking industry. They include:

  1. Credit Risks
    Credit risk is the potential loss of revenue as a result of loan defaults by its borrowers. As at 30 June 2017, RHB Bank Bank has recorded Gross Impaired Loans Ratio of 2.29%, an improvement from 2.43% on 31 December 2016.
  2. Market Risks
    Market Risk is the risk of loss arising from movements in several market variables such as interest rates, credit spreads, commodity prices, equity prices and foreign exchange rates.
  3. Technology Risks
    Technology risk is associated to losses arising from the misuse of IT and technology assets with the company and potential cyber threats from malicious usages of personal data contained by RHB Bank Bhd.  
  4. Capital Adequacy Risks
    Capital Adequacy Risk is the risk of insufficient capital to meet the capital required to satisfy regulatory capital adequacy requirements set by Bank Negara Malaysia. As at 30 June 2017, RHB Bank Bank has recorded Total Capital Ratio of 17.0%. It is above the minimum of 8% and additional capital conservation buffer of 2.5% introduced by Bank Negara Malaysia starting in financial year 2019.

#6: Valuation

As I write, RHB Bank Bhd is trading at RM 4.73 a share.

In 2016, RHB Bank Bhd has reported to make RM 0.436 in earnings per share (EPS). Thus, its current P/E Ratio works out to be 10.85.

As at 30 June 2017, RHB Bank Bhd has reported to have RM 5.63 in net assets a share. Thus, its current P/B Ratio works out to be 0.84.

In 2016, RHB Bank Bhd has declared and paid out RM 0.12 in dividends per share (DPS). If the conglomerate is able to maintain its DPS at RM 0.12 in 2018, thus, its expected dividend yields would be 2.54%.

#7: Investor Relations

For further enquiries on RHB Bank Bhd’s Investors Relation matters, you may contact:

Mr. Syed Ahmad Taufik Albar

Group Chief Financial Officer

Telephone: 03-9280 7090

Email: taufik.albar@rhbgroup.com

#8: Major Shareholders

As at 14 February 2017, the substantial shareholders of Gamuda Bhd are:

  • Employees Provident Board Bhd: 40.71%
  • Aabar Investment PJS: 17.75%
  • OSK Holdings Bhd: 10.13%
  • Amanah Saham Bumiputera: 4.69%
  • Kumpulan Wang Persaraan (Diperbadankan): 3.94%

Want to know more about Value Investing In Asia? We have just launched our book “Value Investing In Asia; The Definitive Guide To Investing In Asia”, published by J.Wiley. Find out more about the book here.

Ian Tai

Ian Tai is the founder of Bursaking.com.my, a platform that empowers retail investors to build wealth through ownership of fundamentally solid stocks. It is an essential tool that sifts out stocks that grow profits consistently from a database of over 900+ stocks listed mainly in Malaysia. As a Malaysian with close family ties in Singapore, Ian publishes a series of newsletters on how anyone can invest profitability in both countries.

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