We maintain our HOLD rating on CIMB Group Holdings Bhd (CIMB) with an unchanged fair value of RM7.30/share for FY14F. This is based on an FY14F ROE of 12.7% and an unchanged fair P/BV of 1.7x.

Based on recent press reports, we attempt to piece together another new merger scenario for the CIMB-RHB Cap-MBSB merger.

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%, in order for the acquirer to compulsorily acquire the remaining stake.

With the latest indications, we believe that the other alternative would be CIMB acquiring the assets and liabilities of RHB Cap, instead of the listed shares. Acquisition of assets and liabilities requires a lower threshold of 75% in terms of shareholders’ approval.

Following this, we envisage that CIMB will likely inject its expanded Islamic operations into MBSB, with MBSB issuing new shares in exchange. This means that CIMB may end up with a 44% stake in MBSB.

Under this scenario, we worked out a possible new fair value for CIMB of RM6.60/share. This, of course, is without assuming any merger synergies or integration costs.

Thus, to raise fair value to back to current level of RM7.30, we estimate that the merged entity will need to extract synergies of RM350mil per annum.

Maintain HOLD on CIMB.

Source: AmeSecurities