RHB Capital Bhd (Jan 12, RM7.30)
Upgrade to trading buy from neutral with revised target price of RM8.70: RHB Capital Bhd (RHBCap) and OSK Holdings Bhd jointly announced that they have submitted applications for the proposed merger of businesses between OSK Investment Bank group and RHB Banking group.
No details were given on the pricing and mode of payment of the proposed merger. They are awaiting the approval of Bank Negara Malaysia (BNM) and the Minister of Finance (MoF).
Given that both parties have submitted applications to BNM and MoF, we believe the clouds surrounding the proposed merger are clearing.
Reviewing the past banking mergers, we observe that the proposed merger could be approved by BNM and the details announced at the earliest by March 2012.
We believe that market speculation about RHBCap undertaking a share swap to acquire OSK Holdings has served as a dampener on its share price, as it is expected to be priced at a lower price-to-book value (P/BV) than OSK Holdings. The rumoured share swap seems more favourable to the shareholders of OSK Holdings than RHBCap’s.
However, we believe there is a possibility the merger will be undertaken via a mixture of cash and a share swap and/or at investment banking unit level rather than the listed holding company level. As such, the market speculation may turn out to be untrue. Therefore, RHBCap could attract some buying interest should the actual merger terms turn out to be more favourable to its shareholders than market speculation allows.
As stated in our initiation report dated Dec 14, although we are positive on RHBCap’s fundamentals, we believe the uncertainties surrounding the merger with OSK Holdings will likely cap its share price performance in the near term.
Should the actual merger details prove to be more favourable to shareholders of RHBCap than the market speculation, it could serve as a near-term re-rating catalyst for the group.
With the proposed merger drawing closer, we have removed our 10% discount from our valuation and revise upwards our target price for RHBCap to RM8.70 using the Gordon Growth model (implied 1.5 times FY12 P/BV, 14% return on equity). The 10% discount was imposed previously to reflect the uncertainties surrounding the merger with OSK Holdings.
We have therefore upgraded our recommendation for RHBCap from “neutral” to “trading buy”. — Alliance Research, Jan 12
This article appeared in The Edge Financial Daily, January 13, 2012.
Upgrade to trading buy from neutral with revised target price of RM8.70: RHB Capital Bhd (RHBCap) and OSK Holdings Bhd jointly announced that they have submitted applications for the proposed merger of businesses between OSK Investment Bank group and RHB Banking group.
No details were given on the pricing and mode of payment of the proposed merger. They are awaiting the approval of Bank Negara Malaysia (BNM) and the Minister of Finance (MoF).
Given that both parties have submitted applications to BNM and MoF, we believe the clouds surrounding the proposed merger are clearing.
Reviewing the past banking mergers, we observe that the proposed merger could be approved by BNM and the details announced at the earliest by March 2012.
We believe that market speculation about RHBCap undertaking a share swap to acquire OSK Holdings has served as a dampener on its share price, as it is expected to be priced at a lower price-to-book value (P/BV) than OSK Holdings. The rumoured share swap seems more favourable to the shareholders of OSK Holdings than RHBCap’s.
However, we believe there is a possibility the merger will be undertaken via a mixture of cash and a share swap and/or at investment banking unit level rather than the listed holding company level. As such, the market speculation may turn out to be untrue. Therefore, RHBCap could attract some buying interest should the actual merger terms turn out to be more favourable to its shareholders than market speculation allows.
As stated in our initiation report dated Dec 14, although we are positive on RHBCap’s fundamentals, we believe the uncertainties surrounding the merger with OSK Holdings will likely cap its share price performance in the near term.
Should the actual merger details prove to be more favourable to shareholders of RHBCap than the market speculation, it could serve as a near-term re-rating catalyst for the group.
With the proposed merger drawing closer, we have removed our 10% discount from our valuation and revise upwards our target price for RHBCap to RM8.70 using the Gordon Growth model (implied 1.5 times FY12 P/BV, 14% return on equity). The 10% discount was imposed previously to reflect the uncertainties surrounding the merger with OSK Holdings.
We have therefore upgraded our recommendation for RHBCap from “neutral” to “trading buy”. — Alliance Research, Jan 12
This article appeared in The Edge Financial Daily, January 13, 2012.
