Yesterday, RHBBANK and AMBANK announced that approval from Bank Negara Malaysia (BNM) has been obtained for both parties to commence discussions for a possible merger between them. RHBBANK is the proposed acquirer with a share swap arrangement and acquisition price tag targeted at 1.0x P/BV. The proposed merger will create the 4th largest domestic entity and the 9th largest in ASEAN, paving way for regional expansion. The new entity will be slightly superior against its top PEERS in terms of ROE and CAR and the expected better value for the merged entity will fetch a better price for ANZ to exit.

Approval from BNM obtained to commence merger discussion. Yesterday, RHBBANK and AMBANK announced that approval from Bank Negara Malaysia (BNM) has been obtained for both parties to commence discussions for a proposed merger between RHB Banking Group and AMBANK Group. We gathered that the 90 days exclusivity period began yesterday and is auto renewal if necessary.

RHBCAP as the acquirer. From the short briefing conducted yesterday, we understand that the acquirer is RHBBANK and the acquisition is likely involving a share swap with no cash involved. In other words, the transaction will effectively be an all shares merger. From our understanding, the acquisition price tag targeted or share swap will be done based on 1x Price/Book Value for AMBANK but the value for RHBANK is yet to be ascertained.

A Tier 1 Bank with capacity for regional expansion. The proposed merger will create the 4th largest domestic entity and the 9th largest in ASEAN in terms of assets, paving the way for regional expansion with domestic markets still tight. RHB is positive that despite being the 4th largest in asset size, it will be in a pole position in Asset Management, Insurance Business and Equity Broking with Islamic Banking coming in at 2nd.

Slightly superior than some peers. Based on the RHBBANK’s FY16 and AMBANK’s FY17 numbers and at a 1.0x PB acquisition, our rough estimation of the new entity are; (i) EPS of the new entity will be 3% higher than RHBBANK, (ii) ROE will be lower by 60bps to 8.3%, and (iii) CET1 and CAR of the enlarged entity is expected to rise by 300bps and 130bps to 14.6% and 16.4%, respectively. This will make its ROE superior from CIMB (7.5%) but lower than Maybank and Public Bank at 10.4% and 15.2%, respectively. Its CAR will make it 2nd after Maybank at 19.0% but superior in CET1 (14.6% vs Maybank’s 14.0%).

Better Value for ANZ? As for post-acquisition shareholding structure, EPF is poised to become the largest shareholder of the newly merged group with a 29.2% stake, followed by Aabar at 10.2%, ANZ at 10.1% and OSK at 4.5%. Will these potential proposed developments expedite the withdrawal of ANZ? Recall that is was widely accepted that pricing is a stumbling block for ANZ’s exit, hence the proposed entity will give a better value proposition for ANZ and looks more attractive to potential buyers. As the proposed merger is yet to be cast in stone, we refrain from making any ascribed value for RHBBANK and we are NEUTRAL on the proposed merger at this point

Source: Kenanga Research - 2 Jun 2017