- We maintain our HOLD rating on RHB Capital Bhd (RHB Cap) with an unchanged fair value of RM7.90/share. This is based on unchanged ROE of 10.8% for FY14F, and an unchanged fair P/BV of 1.1x.

- In our earlier merger scenario, we have assumed that CIMB is likely to acquire the listed shares of RHB Cap. The minimum threshold for shareholders’ approval is 90%, following which the acquirer would then be able to compulsorily acquire the remaining stake.

- At that time, assuming acquisition of listed shares of RHB Cap at P/BV of 1.5x, we worked out a potential value of RM10.13/RHB Cap share. The consideration is expected to be paid for via new CIMB shares.

- With the latest indications, we believe the other alternative would be through the acquisition of RHB Cap’s assets and liabilities, which requires a lower threshold of 75% for shareholders’ approval.

- We have pegged CIMB’s acquisition P/BV at 1.5x for RHB Bank, RHB Islamic, and RHB Investment Bank, for comparative purposes.

- Under this scenario, RHB Cap is estimated to receive a total consideration of RM28.1bil, but this will be still be in the form of new CIMB shares.

- Presumably, RHB Cap may consider placing out the new CIMB shares, or distributing these new CIMB shares to its shareholders.

- But this would have to first net off total borrowings of RM3.0bil at RHB Cap’s holding company level.

- Thus, the value of the listed shell, net borrowing, would work out to RM25.1bil.

- This leads to a possible value of RM9.87/share, slightly lower than RM10.13/share that shareholders may receive from the takeover of the listed shares of RHB Cap.

- Either way, RHB Cap shareholders will be paid via new CIMB shares, and not cash, as an all-out cash acquisition for CIMB would almost halve CIMB’s current group CET1 ratio of 9.6%.

- Maintain HOLD.

Source: AmeSecurities