A possibility could be for MBSB to be the listed vehicle for the Islamic banking operations of the CIMB-RHB-MBSB group.
Upside of 14-32% assuming P/BV range of 1.3-1.5x for FY14E ROE of 11.1%; base case FV of MYR3.03 (1.4x P/BV, +23%).
Trading angle on MBSB; risk to this is if the merger falls through or pricing/structure is materially different.
We estimate an FY14 ROE of 11.1% for the enlarged MBSB and ascribe a P/BV range of 1.3-1.5x, which translates to a fair value (FV) of MYR2.81-3.24 (+14-32% upside). Our base case, being a P/BV valuation of 1.4x implies MYR3.03 FV or 23% upside.
We believe there is a trading angle to MBSB. Uncertainties now are pricing and structure of the Islamic banking entities merger. If our scenario does not pan out, MBSB shareholders would still either get bought out or get to exchange their shares for the largest financial institution in Malaysia. The downside risk is of the CIMB-RHB-MBSB merger falling through or the pricing/structure of the deal being significantly different from what we have envisaged.
Source: Maybank Research - 14 Jul 2014
Upside of 14-32% assuming P/BV range of 1.3-1.5x for FY14E ROE of 11.1%; base case FV of MYR3.03 (1.4x P/BV, +23%).
Trading angle on MBSB; risk to this is if the merger falls through or pricing/structure is materially different.
What’s New
While we have discussed a tripartite CIMB-RHB-MBSB merger (see our CIMB update note on 10 Jul 2014), the alternative would be (i) to first merge CIMB and RHB, and then (ii) to transfer the Islamic operations of the two banks to MBSB, to create a listed mega- Islamic Bank.What’s Our View
Our hypothetical scenario assumes that CIMB Islamic Bank is priced at a P/BV of 1.7x (FY14E ROE: 14%) and RHB Islamic Bank at 1.0x (ROE: 9%), while MBSB issues shares at a P/BV of 1.8x (ROE: 16%) to acquire both entities. This translates to an acquisition cost of MYR9.7b and we estimate CIMB-RHB could end up with a 58% stake in MBSB while EPF’s shareholding would dilute to 27% from 65%.We estimate an FY14 ROE of 11.1% for the enlarged MBSB and ascribe a P/BV range of 1.3-1.5x, which translates to a fair value (FV) of MYR2.81-3.24 (+14-32% upside). Our base case, being a P/BV valuation of 1.4x implies MYR3.03 FV or 23% upside.
We believe there is a trading angle to MBSB. Uncertainties now are pricing and structure of the Islamic banking entities merger. If our scenario does not pan out, MBSB shareholders would still either get bought out or get to exchange their shares for the largest financial institution in Malaysia. The downside risk is of the CIMB-RHB-MBSB merger falling through or the pricing/structure of the deal being significantly different from what we have envisaged.
Source: Maybank Research - 14 Jul 2014
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