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

· Our estimate of the swap ratio is revised slightly, which is that each RHB Cap share is entitled to 1.29 (previously 1.28) RHB Bank share following the proposed holding company restructuring. Thus, apportioning our fair value accordingly for RHB Bank means an unchanged fair value of RM6.90/share for FY16F for every RHB Cap share held currently, given the minor adjustment in our estimated swap ratio. The change in our swap ratio is due to our new assumption that the proposed rights issue size will be reduced by 31.5mil shares.

· RHB Cap has just announced that if Aabar maintains its current shareholding of 21.09% in RHB Cap on the Entitlement Date, the rights issue size shall be reduced by approximately 31.5mil rights shares (Reduction in Rights Shares).

· To recap, RHB Cap had initially proposed a 517,696,286 rights issue, at RM4.82 per rights share on the basis of one (1) rights share for every five (5) existing RHB Cap shares held by the entitled shareholders of RHB Cap.

· The latest announcement is a formal confirmation of our earlier understanding that the potential rights issue may be reduced by 31.5mil, subject to the finalisation of Aabar’s stake on the Entitlement Date on 23 November.

· Overall, there is no new information that is major from the recent announcement. We understand that, as of now, there is still no indication of a commitment from Aabar to subscribe to its portion of the rights issue which it is entitled to, which is about 77mil rights.

· Assuming that the size of the rights issue is reduced by 31.5mil, and if Aabar does not subscribe to 15% of the rights that it is allowed to, we estimate that Aabar’s shareholding may decline to 17.75%, from 21.09%. OSK’s stake may increase to 10.07% from 9.97%. · Given that there is a chance that Aabar may not subscribe to its portion of the rights issue that it is allowed, we believe there will still be ongoing concerns about a potential share overhang from the rights issue. We maintain HOLD.

Source: AmeSecurities Research - 20 Nov 2015