RHB Capital Bhd (Oct 31, RM 7.70)
Maintain buy with target price of RM9.60: The potential merger of RHBCap and OSK’s investment banking business (OSK IB) would create the largest broker in town. We estimate the merged entity’s market share will swell to 15% (trading value) and 17% (trading volume).
RHBCap could tap OSK’s entrenched retail channel (750 remisiers and dealers) to distribute equity and debt products, while grabbing its niche position in the capital markets. OSK IB’s growing presence in Indonesia (1% to 2% market share in equity and debt) is also coveted.
RHBCap has three months (from Bank Negara Malaysia’s approval on Oct 13) to strike a deal with OSK IB. Based on OSK IB’s RM1.25 billion net asset value as of Dec 10 and ascribing 1.5 to 2 times book value (BV) as target M&A multiple, the deal would cost RHBCap RM1.9 billion to RM2.5 billion. If we exclude the two buildings in Jalan Ampang (OSK’s head office, RM227 million net book value [NBV]), the price tag could drop to RM1.5 billion-RM2 billion.
We suspect the consideration would involve cash plus RHBCap shares so that OSK IB’s core management team continues to play a significant role in the merged outfit. Our analysis shows that if RHBCap opts for cash:shares route (60:40), there would be mild positive impact on earnings per share (EPS) but if funding is skewed towards shares, we expect EPS dilution. Return on equity (ROE) would be diluted slightly by 1.6%.
Maintain “buy” and RM9.60 target price based on the Gordon growth model and assuming 5% growth, 11% cost of equity and 16% ROE. Our target price implies 1.7 times FY12F BV. RHBCap’s fundamentals have not changed and it remains one of the cheapest banks in the sector. Its current valuation (1.3 times FY12 BV) has reverted to pre-M&A excitement levels stirred by Malayan Banking Bhd and CIMB Group Holdings Bhd. — Hwang-DBS Vickers Research, Oct 31
This article appeared in The Edge Financial Daily, November 1, 2011.
Maintain buy with target price of RM9.60: The potential merger of RHBCap and OSK’s investment banking business (OSK IB) would create the largest broker in town. We estimate the merged entity’s market share will swell to 15% (trading value) and 17% (trading volume).
RHBCap could tap OSK’s entrenched retail channel (750 remisiers and dealers) to distribute equity and debt products, while grabbing its niche position in the capital markets. OSK IB’s growing presence in Indonesia (1% to 2% market share in equity and debt) is also coveted.
RHBCap has three months (from Bank Negara Malaysia’s approval on Oct 13) to strike a deal with OSK IB. Based on OSK IB’s RM1.25 billion net asset value as of Dec 10 and ascribing 1.5 to 2 times book value (BV) as target M&A multiple, the deal would cost RHBCap RM1.9 billion to RM2.5 billion. If we exclude the two buildings in Jalan Ampang (OSK’s head office, RM227 million net book value [NBV]), the price tag could drop to RM1.5 billion-RM2 billion.
We suspect the consideration would involve cash plus RHBCap shares so that OSK IB’s core management team continues to play a significant role in the merged outfit. Our analysis shows that if RHBCap opts for cash:shares route (60:40), there would be mild positive impact on earnings per share (EPS) but if funding is skewed towards shares, we expect EPS dilution. Return on equity (ROE) would be diluted slightly by 1.6%.
Maintain “buy” and RM9.60 target price based on the Gordon growth model and assuming 5% growth, 11% cost of equity and 16% ROE. Our target price implies 1.7 times FY12F BV. RHBCap’s fundamentals have not changed and it remains one of the cheapest banks in the sector. Its current valuation (1.3 times FY12 BV) has reverted to pre-M&A excitement levels stirred by Malayan Banking Bhd and CIMB Group Holdings Bhd. — Hwang-DBS Vickers Research, Oct 31
This article appeared in The Edge Financial Daily, November 1, 2011.
