- We maintain our HOLD rating on RHB Capital Bhd (RHB Cap) with an upgraded fair value of RM7.90/share, from RM7.40/share previously. This is based on a higher ROE of 10.8% (vs. 10.5% previously) for FY14F, a higher book value of RM7.14/share (vs. RM7.05/share for FY14F), and an unchanged fair P/BV of 1.1x.
- RHB Cap has announced that it will not be going ahead with its earlier proposed acquisition of a 40% stake in PT Bank Mestika Dharma (Mestika) for Rp2,066bil or RM651mil.
- This is because the period (“Conditional Period”) to satisfy or waive the conditions precedent of the Conditional Sale and Purchase Agreement (“CSPA”) for the proposed acquisition has expired on 30 June 2014.
- The company added that since Otoritas Jasa Keuangan’s (Financial Services Authority of Indonesia) approval for the proposed acquisition has not been obtained and the conditions precedent of the CSPA have not been satisfied, the parties to the CSPA have decided not to extend the Conditional Period.
- Accordingly, RHB Cap said the CSPA will lapse on the even date and will be terminated in accordance with the terms. The deposit shall then be refunded to RHB Bank (subsidiary of RHB Cap) in accordance with the CSPA terms.
- The news is not entirely new, as the company had hinted on reviewing the deal in its 1Q14 results briefing earlier in May.
- We are positive on the company’s decision to not go ahead with the proposed acquisition, as this means that there will be less chance of a larger-than-expected rights issue ahead to fund the acquisition and the expansion of Bank Mestika later.
- Previously we had assumed that RHB Cap will likely issue 138mil new rights, at RM5.60/rights share to fund the acquisition in our earnings model. Our earnings forecasts are now revised to reflect the termination of the deal.
- This leads to the upgrade of its ROE and book value.
- We believe its share price has re-rated recently, partly due to market expectations that the company may announce a termination of the deal.
- Maintain HOLD.
Source: AmeSecurities
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