RHB Capital - Capital repayment of RHB Bank shares

Author: kltrader   |   Publish date: Mon, 23 May 2016, 09:53 AM 

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Distribution ratio within expectations

The proposed capital distribution of 1.3 RHB Bank shares for every 1 RHB Capital (RHB) shares, is as expected. The entire restructuring exercise should be completed by Jul 2016. Our MYR6.30 TP is unchanged, pegging RHB Bank’s proforma 2016 BV to a multiple of 0.9x (estd. ROE 9%) while accounting for the share swap ratio as well. HOLD maintained.

Capital repayment of RHB Bank shares

RHB has announced the distribution and capital repayment of RHB Bank shares to RHB shareholders. The distribution ratio has been determined to be 1.3 RHB Bank shares for every RHB share and the shares will go ex for the distribution on 2 Jun 2016.

RHB to be wound down thereafter

Following this capital distribution, the Board will proceed with a members’ voluntary winding up of RHB, to facilitate the transfer of RHB’s listing status to RHB Bank as well as the liquidation of RHB’s remaining assets. For this purpose, an EGM will be convened at a later date and management hopes to complete the entire process by Jul 2016.

Valuations unchanged

We estimate a higher FY16 net profit of MYR1.88b for RHB Bank group vs MYR1.78b currently for RHB, taking into account potential net interest savings of about MYR101m. We also project an FY16 ROAE of 9% for the RHB Bank group, which is a tad higher than our current 8.9% estimate for RHB but lower than management’s target of 10% this year. This is also after having raised our dividend payout assumption to 30% from 24% currently since RHB Bank should be in a position to reinstate its previous dividend policy, having eliminated the group’s double leverage problem. We estimate a proforma FY16 BVPS of MYR5.34 for RHB Bank, to which we have applied a PBV of 0.9x and multiplied by 1.3x (the share swap ratio), to derive our TP of MY6.30.
Source: Maybank Research - 23 May 2016