- We maintain our HOLD rating on CIMB Group Holdings Bhd (CIMB) with an unchanged fair value of RM6.85/share. This is based on our unchanged ROE estimates of 11.9% for the enlarged RHB Cap entity, which leads to a fair P/BV of 1.3x and fair value of RM9.50/share for RHB Cap’s enlarged entity.

- Our CIMB’s fair value is derived after applying a share swap ratio of 0.72 RHB Cap share for 1 CIMB share (based on 1 RHB Cap share for every 1.38 CIMB share).

- The press reported there may be a possible recalibration of relative values of the financial institutions involved in the mega bank proposal, due mainly to the downward trend in CIMB’s share price since the key merger details were announced on 9 October 2014. The press contrasted this with the share price performance of RHB Cap, which had risen since then.

- However, we do not foresee any changes to the key merger proposals announced. At our recent company visit with CIMB, the company indicated it does not foresee any major changes in the details of the merger.

- Thus, we anticipate the swap ratios to be maintained. To recap, the swap ratio is based on 1 RHB Cap share for every 1.38 CIMB share held.

- To recap, the proposals have been submitted to Bank Negara Malaysia (BNM) and are awaiting approval. There is also concurrent engagement with other relevant regulatory authorities in the region.

- The sale and purchase agreement is expected to be signed in January 2015 once the necessary regulatory approvals are obtained.

- The next item on the agenda would be shareholders’ approval at EGMs, followed by a court order to transfer the assets and liabilities by mid-2015.

- We maintain HOLD.

Source: AmeSecurities