RHB Cap 7.30 Price Target - Hwdbs

RHB Capital (RM6.10; Buy; Price Target: RM7.30; RHBC
Bursa’s approval on rights issues obtained
In an announcement yesterday, RHB Capital said that Bursa Malaysia has approved the listing and quotation of up to 1.3bn new RHB Capital Shares to be issued pursuant to its Proposed Rights Issue. Recall that RHB Cap has planned a RM1.3bn rights issue to fund the 80% acquisition of Bank Mestika. 
The rights issue is scheduled to be completed by 2Q10, and expected to dilute RHB Cap’s EPS by c.11% and nudge down ROE to 13% for FY10 and 14% for FY11.
Even after the slight dilution, RHB Cap’s valuations are compelling – it remains the cheapest stock in our Malaysia large cap universe trading at only 8x forward EPS (9x post-rights) and 1.2x FY11F BV (1.3x post-rights), a 32% discount to the sector average of 1.9x. We reiterate Buy and RM7.30 TP based on the Gordon Growth Model with 15% sustainable ROE, 4% long term growth and 10.7% cost of equity. 

by : HWDBS Vickers