· We downgrade our rating on RHB Capital Bhd (RHB Cap), to HOLD, from BUY, with a lower fair value of RM8.30/share (from RM9.30/share previously). Our fair value is based on a lower ROE of 10.5% (from 11.0% for FY15F) after assuming the rights issue. This leads to a new fair P/BV of 1.05x (vs. 1.2x previously).

· RHB Capital (RHB Cap) has announced a renounceable rights issue, to raise an intended proceeds of up to RM2.5bil. The pricing and basis are expected to be fixed later.

· The quantum of rights issue is higher than our initially estimated RM1.4bil, but is slightly lower than press reports of RM3bil.

· Assuming the rights issue price is fixed at RM6.80, we estimate that this will entail a rights issue on a 1-right-forevery- 7-share basis.

· Under this scenario, we estimate that the fully-loaded CET1 ratio for the bank entity level, with the rights issue, to be comfortable at 9.5%. (Without the rights issue, we estimate the fully-loaded CET1 ratio to be about 7.1%; see table in following page).

· With the latest confirmation, we have adjusted our FY15F forecasts, to reflect the rights issue and our assumption of the rights issue pricing and basis.

· This leads to a lower fair value of RM8.30/share. Given that there is less than 15% upside from the current share price, we are downgrading our rating to HOLD.

Source: AmeSecurities Research - 14 Apr 2015