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KUALA LUMPUR: RHB Investment Bank Bhd (RHB IB), one of the country’s largest investment banks following its merger with OSK Investment Bank Bhd (OSK IB) in November 2012, expects a minimum profit before tax (PBT) growth of 30% for its financial year 2013 (FY13).

Thereafter, it’s aiming for PBT to grow about 20% a year for the next three years, said managing director and chief executive officer Mike Chan.

“I think in 2013, we should be top two in terms of profitability among the investment banks in Malaysia,” he told The Edge Financial Daily in a recent interview.

RHB IB is the investment banking unit of the RHB banking group, which will be releasing its full-year results next month.

RHB IB reported a strong PBT of RM84.4 million in FY12, the year it acquired OSK IB, compared with RM45.2 million in FY11. It attributed growth that year to its revitalised business, pre-merger synergies with OSK IB and lower impairment losses.

Chan said growth is expected to be supported by RHB IB’s key businesses, namely investment banking, treasury and brokerage. He added that the ideal revenue breakdown from the three segments would be one-third each.

“I would say it fluctuates on a year-to-year basis. But for a typical year, it should be one-third investment banking (which includes asset management), one-third Treasury and one-third brokerage,” Chan remarked.

Last year, however, about 40% of revenue came from investment banking as the Treasuries segment was weaker due to choppy waters in the global capital market, owing to uncertainties over the US Federal Reserve’s tapering of its quantitative easing (QE) programme.

“Last year, about 40% of revenue came from investment banking and 30% from brokerage, with the Treasury division on the slightly weaker side,” said Chan.

In FY12, RHB IB contributed 4% to 5% of its parent RHB Capital Bhd’s PBT. For its upcoming financial results, Chan sees its contribution doubling to around 10%. “Now we have the intention to be more significant. For FY14 and FY15, we are targeting to contribute 15%,” he said.

The group’s non-interest income-to-total income ratio increased to 28.6% in 2012 from 24.7% the previous year.

RHB IB is keen to expand further in Southeast Asia, as well as into the Greater China markets of Hong Kong, China and Taiwan. In Greater China, its areas of interest are investment banking and asset management.

“We’re already in Hong Kong, but we’re building up our debt trading capabilities further. Right now, we’re predominantly in equities and brokerage,” Chan said.

RHB IB already has a foothold in most of the Southeast Asian countries, except for the Philippines, Laos and Myanmar. As its stands, about 25% of its revenue comes from overseas, but it is hoping to raise that to 40% by 2017. The biggest contributor to its revenue currently is Malaysia, followed by Singapore and Indonesia.

Both organic and inorganic growth are being considered in its bid to expand, said Chan. “Right now, we are exploring but we are not in talks with anyone. Frankly, it depends on the opportunity and valuation.”

Chan added that it plans to tap into Europe and the US through joint ventures. RHB IB already has tie-ups with Okasan Securities Group Inc in Japan and Auerbach Grayson & Co in the US to distribute products such as research reports.

Last week, RHB IB entered into a strategic partnership for equity distribution with Portugal-based Espirito Santo Investment Bank (ESIB).

“Now the arrangement is that we are predominantly in equity but eventually, we will look at exchanging ideas on mergers and acquisitions (M&A). Through the collaboration, we will exchange ideas and try to get deals done,” said Chan, adding that the joint venture is structured equally between both parties.

On its parent RHBCap’s plan to acquire a 40% stake in Indonesian lender PT Mestika Dharma, Chan said the group aims to finalise the agreement this year. RHB IB is advising its parent on the exercise.

The group is waiting for the Indonesian regulator to get back to it on the deal. “I think because of the general election in Indonesia [later this year], the decision won’t be out so soon. But we are still hopeful it’ll be in the first half of this year,” he said.

Meanwhile, RHB IB is the mandated book runner for some major initial public offerings (IPO) this year, such as property developer Iskandar Waterfront Holdings Bhd’s US$300 million (RM1 billion) offering as well as power producer Malakoff Corp Bhd’s US$1 billion offering.

RHB IB was joint principal adviser for IOI Properties Group Bhd’s IPO, which was completed recently. It is now eyeing the next big IPO deal, that of 1Malaysia Development Bhd’s (1MDB) power assets that may reportedly raise US$2 billion.

Earlier this month, 1MDB invited investment banks to make a pitch for advisory roles in the IPO of its power assets. The proposals are being evaluated and the company is expected to make its debut on the local bourse by the end of this year.

Chan said RHB IB is also working on some small to mid-cap company listings, a special purpose acquisition company as well the listing of Singapore-based property company OUE Commercial Real Estate Investment Trust on the Singapore Exchange this year.

In 2013, RHB IB was involved in a total of 17 IPOs in the region.


This article first appeared in The Edge Financial Daily, on January 27, 2014.


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