- We maintain HOLD on RHB Capital Bhd (RHB Cap), with a higher fair value of RM6.90/share (from RM5.90/share previously). Our fair value is based on an upgraded FY16F ROE of 10.0% (previously 9.2%) for the new RHB Bank which will take over RHB Cap’s listing status. This leads to a higher fair P/BV of 1.0x (previously 0.8x), and a higher fair value of RM5.40/RHB Bank share (previously RM4.50/RHB Bank share).

- Our estimate of the entitlement ratio is unchanged, which is each RHB Cap share is entitled to 1.31 RHB Bank share following the proposed restructuring. Thus, apportioning our fair value accordingly for RHB Bank means a new fair value of RM6.90/share (previously RM5.90/share) for FY16F for every RHB Cap share held currently.

- RHB Cap has just announced it has accepted the application of 1,812 employees for the Career Transition Scheme (CTS) which was open to its permanent workforce in Malaysia, and completed on 30 September 2015. This represents 11.8% of the RHB Cap’s Malaysian workforce of 15,348 and 13.1% of the group’s permanent workforce of 13,787 in Malaysia.

- RHB Cap further said that whilst the number of applications received was much bigger, the group is only able to accept the applications of 1,812 employees in view of the Group’s business requirements.

- RHB Cap also added that employees, whose applications have been approved, will be released in batches between November this year to January 2016.

- RHB Cap said the CTS payout is estimated at RM309mil. The group expects to achieve an annual personnel costs rationalisation of approximately RM193mil.

- We estimate this works out to a payback period of 19.2 months. This is within the norm, as CIMB’s earlier similar Mutual Separation Scheme’s (MSS) payback period was 18.2 months.

- We have assumed that the RHB Cap will provide for the the one-off CTS costs of RM309mil in FY15F. We have further assumed the annual personnel costs savings of RM193mil from FY16F onwards.

- With the annual costs savings of RM193mil, we have upgraded our net earnings by 7.4%, leading to a higher ROE of 10.0% from 9.2% previously. Maintain HOLD.

Source: AmeSecurities Research - 28 Oct 2015