RHB Cap announced yesterday to Bursa that its Internal Reorganisation has been completed with the transfer of the entire equity interest to RHB Bank. Pursuant to the announcement, management of RHBCAP held a conference call for analysts.

RHB Bank the new holding company. RHBCAP announced yesterday that the Internal Reorganisation of the RHB Capital Group of Companies was completed yesterday. As highlighted before, the reorganisation entails the transfer by RHB Capital of its entire equity interest in, and certain assets and liabilities to its wholly owned subsidiary, RHB Bank Berhad, which effectively is the new group holding company. The transfer was for a total cash consideration of RM3.61b by RHB Bank. Following the completion of the reorganisation, RHB Capital injected RM2.49b into RHB Bank (proceeds from the Rights Issue exercise executed in FY15) in exchange for 447.84m new RHB Bank shares which were issued at an issue price of RM5.56/RHB Bank share.

Listing of the new entity expected to be completed by end of July 2016. Management held a brief conference call pursuant to the announcement and gave a few details of the effect of the new listing. Among them; i) The listing of RHB Bank is expected to be completed by end of July 2016 (as some legal and share swap issues have to be addressed); ii) There will be an interest cost saving of RM135m at the RHB Bank level (due to the listing); iii) share swap ratio will be at 1.3 RHB Bank share for every 1 RHBCAP share; iv) Proforma Shareholders fund for the new entity is estimated at RM20b (RM23b at the RHB Cap level); and v) Proforma share capital is expected at 4.01b shares (3.01b shares at the RHB Cap level) .

Impact to our estimates: The enlarged share capital will dilute our forecast EPS for FY16E/FY17E by 30%/28% to 0.46/0.56 sen per share but our forecast ROE for FY16E/FT17E will be enhanced from 8.1% to 8.6%/9.4% to 10.6% respectively.

TP raised but downgrade to Market Perform. We raised our TP to 6.58 (from RM6.23 previously) as we rollover our valuation to FY17 based on a blended FY17E PB/PE ratio of 1.3x/10.6x. This is based on its 5-year average PB/PE ratio with a SD of +1. However given the sharp appreciation of its share price recently we downgrade our rating to Market perform as the potential upside is less than 10%. The stock is still looking attractive with its low P/B but decent ROE among its domestic peers. The stock is currently one of the cheapest public listed banks, trading at 0.8x P/B value with a P/B ratio of ~8.0%. In the meantime, the industry is currently trading at 1.5x P/B with an average ROE of 11.7%.

Source: Kenanga Research - 15 Apr 2016