We recommended to sell our 1,500 RHBCap shares @ RM8.35/share each from both the Thematic and Growth Portfolios yesterday. With the disposal, we have made a small profit of RM105 each in both the portfolios within the T+3 contra period. The main reason is to switch over the funds into RHBCap-CR, which we believe provide better leverage to its mother share. With that, we are adding 50k RHBCap-CR each to both portfolios.
The RHBCap-CR was issued by CIMB Bank Berhad on 17th of February 2014 and will expired a year later. The strike price of the call warrant to the underlying share was set at RM7.50 with a conversion ratio of five RHBCap-CRs for one RHBCap share. The call warrant is currently trading at a 3.0% premium against its mother share with a gearing of 7.6, based on yesterday closing price of RM0.22.
Outlook-wise, RHBCap group is still aiming to achieve a ROE of >12% in FY14 despite tougher operating environment. The management also set its loan growth target of 12% while CASA deposits growth target is pegged at >15%. Although these targets could be uphill tasks, we believe it would be able to register loan growth nearer 11% if and when more ETP projects kick start this year.
RHBCap is one of the lagging banking stock in 2013 (2.7% vs. 14.8% average return in the banking sector). Despite the group’s share price advancing 5.7% YTD (vs. -3% in the banking sector), we believe, there is still room for growth. We have a fundamental target price of RM8.75 for RHBCap, implying a fair value of RM0.295 (or 34% upside) for its CR, based on Black Scholes Option Pricing model.
Source: Kenanga