-We downgrade our rating on CIMB Group Holdings Bhd (CIMB) to HOLD from BUY, with a revised fair value of RM7.10/share (vs. RM8.20 previously). This is based on a lower-than-expected acquisition P/BV of 1.7x for CIMB, compared to our earlier assumption of 1.9x.

- CIMB has announced details of the mega bank merger.

- CIMB will be acquired by RHB Cap at a price of RM7.267/share. This is much lower than our earlier assumption of RM8.21/share.

- The acquisition P/BV for CIMB is 1.7x. This is lower than our earlier anticipated 1.9x.

- The consideration is new RHB shares, priced at RM10.028/RHB Cap share. This is higher than our earlier assumption of RM9.16/RHB Cap share.

- We estimate the book value of the enlarged RHB Cap entity at RM9.83/share. This compares to our earlier assumption of RM9.18/share.

- The swap ratio for CIMB works out to be 0.72 RHB Cap new share for every one CIMB share held.

- With a swap ratio of 0.72x, and assuming that the enlarged entity will trade at a minimum P/BV of 1x, we estimate the valuation for CIMB at only RM7.10/share. This is in contrast to our earlier estimate of RM8.20/share.

- The main difference for the proposed merger when compared to our earlier estimates is the lower-than-expected acquisition P/BV for CIMB.

- With less-than-anticipated upside from the merger, we therefore downgrade our rating on CIMB to HOLD.

Source: AmeSecurities