- We maintain our HOLD rating on Malaysia Building Society Bhd (MBSB) with an unchanged fair value of RM2.40/share. Our fair value is based on a fully-diluted ROE of 17.4% for FY14, leading to a revised fair P/BV of 1.7x.
- Judging from recent press reports, we have revisited our assumptions on the three-way merger between CIMB, RHB Cap and MBSB.
- We have assumed that CIMB will inject the Islamic operations into MBSB and retain MBSB as a separatelylisted Islamic vehicle.
- We expect CIMB to inject the enlarged CIMB-RHB Islamic assets at P/BV of 1.5x, which corresponds with the P/BV that CIMB would presumably pay for RHB Islamic. This also corresponds with CIMB’s current traded P/BV. We expect MBSB to fund 70% of the acquisition cost via new shares, and remaining 30% via debt.
- Based on our sensitivity analysis, there is minimal enhancement to EPS, mainly due to the potentially large 125% increase in MBSB’s issued share base. Book value per share may increase by 33% to RM2.03/share, from RM1.52/share.
- As for ROE, we find that MBSB’s relatively high ROE would be diluted down by about 4ppt, to 11.7% from 15.9%, due to the larger equity base. This leads to a theoretical potential fair P/BV of 0.95x or about RM1.90/share.
- In terms of shareholding structure, we project that CIMB will end up with a 44.4% stake in MBSB, while EPF’s current 65.0% holding will be diluted to 36.1%.
- We acknowledge that our sensitivity analysis has not taken into account possible merger synergies. A quick back-of-the-envelope calculation indicates that if MBSB is able to extract yearly merger synergies of RM200mil, this may result in an upgrade in fair value back to our current level of RM2.40/share.
- In addition, we have not taken into account that MBSB may need to dispose its non-Islamic assets (we estimate that this may be about 23% of its total assets) in order to be classified as an Islamic bank. There may be some gains from sale of its non-Islamic assets later.
- Other than the quantitative impact, the mega merger will also enable MBSB to grow into a potentially large Islamic player, which may provide some upside in the longer term. Maintain HOLD.
Source: AmeSecurities
- Judging from recent press reports, we have revisited our assumptions on the three-way merger between CIMB, RHB Cap and MBSB.
- We have assumed that CIMB will inject the Islamic operations into MBSB and retain MBSB as a separatelylisted Islamic vehicle.
- We expect CIMB to inject the enlarged CIMB-RHB Islamic assets at P/BV of 1.5x, which corresponds with the P/BV that CIMB would presumably pay for RHB Islamic. This also corresponds with CIMB’s current traded P/BV. We expect MBSB to fund 70% of the acquisition cost via new shares, and remaining 30% via debt.
- Based on our sensitivity analysis, there is minimal enhancement to EPS, mainly due to the potentially large 125% increase in MBSB’s issued share base. Book value per share may increase by 33% to RM2.03/share, from RM1.52/share.
- As for ROE, we find that MBSB’s relatively high ROE would be diluted down by about 4ppt, to 11.7% from 15.9%, due to the larger equity base. This leads to a theoretical potential fair P/BV of 0.95x or about RM1.90/share.
- In terms of shareholding structure, we project that CIMB will end up with a 44.4% stake in MBSB, while EPF’s current 65.0% holding will be diluted to 36.1%.
- We acknowledge that our sensitivity analysis has not taken into account possible merger synergies. A quick back-of-the-envelope calculation indicates that if MBSB is able to extract yearly merger synergies of RM200mil, this may result in an upgrade in fair value back to our current level of RM2.40/share.
- In addition, we have not taken into account that MBSB may need to dispose its non-Islamic assets (we estimate that this may be about 23% of its total assets) in order to be classified as an Islamic bank. There may be some gains from sale of its non-Islamic assets later.
- Other than the quantitative impact, the mega merger will also enable MBSB to grow into a potentially large Islamic player, which may provide some upside in the longer term. Maintain HOLD.
Source: AmeSecurities
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