Oct 27, 2014

Merger Proposal of CIMB-RHBCap-MBSB

The Edge Malaysia Weekly carried an article that Aabar Investments PJS may now be in favour of the merger proposal involving CIMB-RHBCap-MBSB, believing that the merger synergies will be positive. The merger, of which will create the 4th largest bank in ASEAN, will see synergies such as a wider regional presence for each entity and increased cost efficiencies.
(Source: The Edge Malaysia)

Comment: In our view, Aabar’s vote plays a significant role in the voting of the merger proposal, given that the EPF, the key shareholder in RHBCap has not been allowed to exercise its vote in an upcoming EGM (to be convened). Aabar, who holds 21.9% in RHBCap, will see its voting rights increase to 37.4% and may subsequently influence other minority shareholders’ decisions as well. We anticipate the share prices of CIMB and RHBCap to recover as a result of this new development (if turn out to be true).

Though our recommendations remain unchanged – CIMB Group (REDUCE rating under review, RM6.29, PT RM6.63 @ FY15 P/BV target of 1.38x); RHBCapital (REDUCE, RM8.69, PT RM7.50 @ FY15 P/BV target of 1.0x); MBSB (ADD, RM, PT RM2.60 @ FY15 P/BV target of 1.4x), we note that the share prices of CIMB, RHBCap and MBSB may trade higher than our price targets due to a more optimistic scenario of the merger. We also understand that the final pricing of the share exchange will likely be subject to revisions, depending on the latest market pricing, though the share swap ratio will remain. Key risks to the merger include:
i) Aabar’s final decision (of whether it is in favour of the merger)
ii) higher capital requirements to address the double leverage ratio.

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