RHBCAP (1066) - RHB Capital Bhd - Unveiling its internal reshuffle and rights issue
Target RM10.50 (Stock Rating: ADD)
As expected, RHBCap announced its proposal to carry out an internal reorganisation and rights issue (RI). We estimate that the RI will dilute the group’s FY16 EPS by 10-12% but this will be partly offset by tax savings and the withdrawal of the holding-company discount for the valuation of the stock. For now, we retain our DDM-based target price (COE of 11.8%; LT growth of 4%). Despite the proposed RI, RHBCap remains an Add and our top pick for the sector in view of the positive earnings prospects emanating from the (1) above-industry loan growth, (2) benefits from its IGNITE 17 transformation programme, and (3) swift expansion in Singapore.
What Happened
Today, RHB Capital proposed an internal reorganisation and RI. The group intends to raise up to RM2.5bn from the RI with an indicative 20-30% discount for the rights price. The proposed IR is aimed at making RHB Bank the listed entity and the holding company of all the businesses of the group, replacing RHB Capital. The swap ratio of RHB Capital and RHB Bank shares has yet to be determined at this juncture, but we think that investors’ exposure to RHB Capital’s business profile will not materially change following the exercise, though all of its business units will be housed under the newly listed entity of RHB Bank.
What We Think
The proposal is largely in line with our expectations, as highlighted in our reports dated 5 Apr 15 and 7 Apr 15. The only deviation is the indicated 20-30% discount for the rights price, compared to our anticipated discount of only 15%, suggesting wider dilution from the RI. Based on our simulation, the RI will dilute RHB Capital’s FY16 EPS by 10-12% assuming (1) total proceeds of RM2.5bn to be raised, and (2) a 20-30% discount for the rights price. However, this will be partly offset by (1) savings of tax expenses, estimated to be RM20m-30m per annum, and (2) the withdrawal of holding-company discount for the valuation of the stock.
What You Should Do
Stay invested given the positive earnings outlook. Upfront, it will have to bear the dilutive effect of the RI, but this could be partly offset by tax savings.
Source: CIMB Daybreak - 14 April 2015
Target RM10.50 (Stock Rating: ADD)
As expected, RHBCap announced its proposal to carry out an internal reorganisation and rights issue (RI). We estimate that the RI will dilute the group’s FY16 EPS by 10-12% but this will be partly offset by tax savings and the withdrawal of the holding-company discount for the valuation of the stock. For now, we retain our DDM-based target price (COE of 11.8%; LT growth of 4%). Despite the proposed RI, RHBCap remains an Add and our top pick for the sector in view of the positive earnings prospects emanating from the (1) above-industry loan growth, (2) benefits from its IGNITE 17 transformation programme, and (3) swift expansion in Singapore.
What Happened
Today, RHB Capital proposed an internal reorganisation and RI. The group intends to raise up to RM2.5bn from the RI with an indicative 20-30% discount for the rights price. The proposed IR is aimed at making RHB Bank the listed entity and the holding company of all the businesses of the group, replacing RHB Capital. The swap ratio of RHB Capital and RHB Bank shares has yet to be determined at this juncture, but we think that investors’ exposure to RHB Capital’s business profile will not materially change following the exercise, though all of its business units will be housed under the newly listed entity of RHB Bank.
What We Think
The proposal is largely in line with our expectations, as highlighted in our reports dated 5 Apr 15 and 7 Apr 15. The only deviation is the indicated 20-30% discount for the rights price, compared to our anticipated discount of only 15%, suggesting wider dilution from the RI. Based on our simulation, the RI will dilute RHB Capital’s FY16 EPS by 10-12% assuming (1) total proceeds of RM2.5bn to be raised, and (2) a 20-30% discount for the rights price. However, this will be partly offset by (1) savings of tax expenses, estimated to be RM20m-30m per annum, and (2) the withdrawal of holding-company discount for the valuation of the stock.
What You Should Do
Stay invested given the positive earnings outlook. Upfront, it will have to bear the dilutive effect of the RI, but this could be partly offset by tax savings.
Source: CIMB Daybreak - 14 April 2015
