Higher share swap ratio for RHB Bank

PETALING JAYA: With RHB Capital Bhd's internal restructuring completed, shareholders can look forward to a 1.3 RHB Bank shares for every one RHBCap share swap, as a precursor to the listing of RHB Bank.
"The ratio is higher than our initial estimate of 1.25 times and on the back of a higher proforma book value as well. Our target price is raised to RM6.30 from RM5.85, pegging RHB Bank's proforma 2016 book value to an unchanged 0.9 times while accounting for the share swap ratio as well," MaybankIB Research said in a report.

RHBCap deems its internal restructuring completed with the injection of RM2.49 billion capital into RHB Bank in exchange for 447.84 million new RHB Bank shares, which were issued at a price of RM5.56 per share, pricing RHB Bank at a price to book value of about 1.1 times.
The next step is to apply to the High Court to liquidate RHBCap and list RHB Bank, and the management hopes to complete this process by July this year.
The capital injected into RHB Bank is essentially the proceeds from RHBCap's recent rights issue, with which RHB Bank will have a healthy common equity tier 1 ratio of over 12%, with a ratio of over 10% at the bank level.
"We estimate a higher FY16 net profit of RM1.88 billion for RHB Bank group compared with RM1.78 billion currently, taking into account potential net interest savings of about RM101 million. We also project an FY16 return on average equity of 9% for the RHB Bank group, which is a tad higher than our current 8.9% estimate for RHBCap but lower than management's target of 10% this year," said the research house.
It added that this is also after having raised the 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 book value of equity per share of RM5.34 for RHB Bank, to which we have applied a price-to-book value of 0.9 times and multiplied by 1.3 times (the share swap ratio), to derive our target price of RM6.30 (from RM5.85 previously)," said MaybankIB, maintaining its hold recommendation for the stock.