- We maintain our HOLD rating on RHB Capital Bhd (RHB Cap) with a revised fair value of RM9.50/share, from RM9.18/share previously. Our fair value is based on the possible merger with CIMB. This is based on our estimated ROE of 11.9% for the enlarged RHB Cap entity, leading to a fair P/BV of 1.3x on the enlarged RHB Cap’s entity’s book value of RM7.19/share.

- The company announced that the stock exchange, Bursa Securities had, vide its letter dated 21 October 2014, rejected the application to Bursa Securities for a waiver from complying with the related party transaction requirements under paragraph 10.08(7)(a) of the Main Market Listing Requirements of Bursa Securities (Listing Requirements) in respect of the rights of Employees Provident Fund Board (EPF) as a shareholder to abstain from voting on the resolution(s) to approve the Proposed Acquisition of CIMB Group, and Proposed RHB Islamic Disposal at an extraordinary general meeting of RHB Capital to be convened (Proposed Waiver), as there are no adequate justifications that the potential conflicts of interests involving EPF has been eliminated or sufficiently mitigated.

- Effectively this means that EPF will not be allowed to vote at the shareholder’s meeting of RHB Cap, in relation to the merger. To recap, for the merger to go through, this will require the approval of at least 50% plus one share of shareholders present and voting at the RHB Cap’s shareholder’s meeting.

- If excluding EPF’s current shareholding of 41.5% in RHB Cap, Aabar Investments (Aabar)’s stake will make up 36.6% of the remaining shareholding without EPF.

- The other top 28 shareholders of RHB Cap as at 30 March 2014 is also disclosed in its latest annual report (see table in following page). If presumably Aabar were to vote against the merger, we reckon most of the remaining top 28 shareholders will need to vote for the merger as these remaining 28 shareholders would make up 47.2% of the shareholding structure (excluding EPF).

- Notably, the bulk of these are mainly local funds. We estimate foreign funds makes up only 5.9% of shareholding structure, without including EPF’s stake.

- Bursa’s decision is a surprise to us. Nevertheless, we believe that the merger will likely proceed, given that Aabar’s portion makes up only 36.6% of the remaining shareholding.

Source: AmeSecurities