MAYBANK (1155) - Malayan Banking Bhd - Possible bid for RHB Capital?
Target RM12.50 (Stock Rating: ADD)
We would not be surprised if Maybank were to explore the possibility of a merger with RHBCap, as mentioned in The Edge weekly, because it has attempted to before. We estimate that the purchase of RHBCap would be EPS neutral if done via share swap but could dilute Maybank’s FY16 EPS by 3.8% if financed by rights issue. Maybank would have to bear high integration costs during the 1-2 years after the merger, while the cost synergies would only emerge after that. Our DDM-based target price (COE of 9.7%; LT growth of 4%) is intact. We continue to rate Maybank an Add, premised on its growth potential in the region, especially for its Indonesian and investment banking operations.
What Happened
The Edge weekly article over the weekend stated that Maybank may emerge as the next suitor for RHB Capital (RHBCap), as the proposed merger of CIMB Group Holdings (CIMB), RHBCap and the Malaysian Building Society (MBSB) has been called off. According to a senior Maybank employee, RHBCap emerged as the top choice in Maybank’s scenario planning for potential M&As. However, he thinks that the group will not make a move immediately.
What We Think
We would not be surprised if Maybank were to bid for RHBCap, as it officially explored the possibility of a merger with RHBCap in 2011, although it was unsuccessful then. We estimate that Maybank’s merger with RHBCap would be EPS neutral if done via share swap. However, if the deal is financed by rights issue, it would dilute Maybank’s FY16 EPS by about 3.8%. In our view, the merger with RHBCap would be negative in the short term (within 1-2 years after completion), as Maybank would have to book high integration costs, which would include the costs related to the closing of branches and voluntary separation scheme (VSS). Any cost synergies would only emerge in the longer term. There would be immediate revenue synergies, like the addition of the RHBCap branches in Thailand and Singapore, but these would be small relative to Maybank’s earnings.
What You Should Do
Stay invested in Maybank for its growth prospects in the region, especially for its Indonesian and investment banking operations. At this juncture, the Maybank-RHBCap merger is still uncertain.
Source: CIMB Daybreak - 19 January 2015
Target RM12.50 (Stock Rating: ADD)
We would not be surprised if Maybank were to explore the possibility of a merger with RHBCap, as mentioned in The Edge weekly, because it has attempted to before. We estimate that the purchase of RHBCap would be EPS neutral if done via share swap but could dilute Maybank’s FY16 EPS by 3.8% if financed by rights issue. Maybank would have to bear high integration costs during the 1-2 years after the merger, while the cost synergies would only emerge after that. Our DDM-based target price (COE of 9.7%; LT growth of 4%) is intact. We continue to rate Maybank an Add, premised on its growth potential in the region, especially for its Indonesian and investment banking operations.
What Happened
The Edge weekly article over the weekend stated that Maybank may emerge as the next suitor for RHB Capital (RHBCap), as the proposed merger of CIMB Group Holdings (CIMB), RHBCap and the Malaysian Building Society (MBSB) has been called off. According to a senior Maybank employee, RHBCap emerged as the top choice in Maybank’s scenario planning for potential M&As. However, he thinks that the group will not make a move immediately.
What We Think
We would not be surprised if Maybank were to bid for RHBCap, as it officially explored the possibility of a merger with RHBCap in 2011, although it was unsuccessful then. We estimate that Maybank’s merger with RHBCap would be EPS neutral if done via share swap. However, if the deal is financed by rights issue, it would dilute Maybank’s FY16 EPS by about 3.8%. In our view, the merger with RHBCap would be negative in the short term (within 1-2 years after completion), as Maybank would have to book high integration costs, which would include the costs related to the closing of branches and voluntary separation scheme (VSS). Any cost synergies would only emerge in the longer term. There would be immediate revenue synergies, like the addition of the RHBCap branches in Thailand and Singapore, but these would be small relative to Maybank’s earnings.
What You Should Do
Stay invested in Maybank for its growth prospects in the region, especially for its Indonesian and investment banking operations. At this juncture, the Maybank-RHBCap merger is still uncertain.
Source: CIMB Daybreak - 19 January 2015
