RHBCAP (1066) - RHB Capital Bhd - Restructuring for tax efficiency
Target RM10.50 (Stock Rating: ADD)
According an article in The Edge, RHBCap plans for internal reorganisation to enable RHB Bank to take over the listing status of RHBCap and house all the entities of the group. This does not come as a surprise to us as the management has guided for possible corporate restructuring. This would be marginally positive for the group as it could lead to tax savings. However, the overall impact of the deal would be negative if it includes an EPS-dilutive rights issue. Our DDM-based target price (COE of 11.8%; LT growth of 4%) is intact. Despite the possible rights issue, RHBCap remains an Add and our top pick for the sector due to the potential re-rating catalysts of: 1) robust loan growth, and 2) benefits from the IGNITE 17 transformation programme.
What Happened
Over the weekend, The Edge published an article stating that RHBCapital (RHBCap) is considering internal reorganisation that would make RHB Bank the listed entity, taking over RHBCap, and the holding company for all the entities in the group. The purpose of this move is to improve the group’s tax efficiency, as it would enable RHB Bank to use its income to reduce some of its tax expenses. The deal may involve a rights issue that could lower its double-leverage ratio from above 130% now to 120%.
What We Think
The news was not a surprise to us because the management has been guiding that it plans for corporate restructuring (please refer to our reports on 1 Mar 15 and 17 Mar 13). However, The Edge article provided more clarity on the restructuring, including management’s rationale and the possible deal structure. The proposed new structure is akin to those of Maybank and Public Bank, whereby the commercial banks house all the entities in the group. The internal reorganisation per se would be slightly positive for the group as it would lead to some tax savings. However, the overall impact of the deal would be negative if it involves a rights issue due to its dilutive effect on EPS. The management was not able to provide us with guidance on the quantum of the rights issue as the group is still in discussions with the central bank.
What You Should Do
Stay invested in RHBCap for its bright earnings outlook, emanating from: 1) robust loan growth, and 2) the benefits from its IGNITE 17 transformation programme. We would revise our target price and recommendation upon the announcement of the internal reorganisation exercise.
Source: CIMB Daybreak - 06 April 2015
Target RM10.50 (Stock Rating: ADD)
According an article in The Edge, RHBCap plans for internal reorganisation to enable RHB Bank to take over the listing status of RHBCap and house all the entities of the group. This does not come as a surprise to us as the management has guided for possible corporate restructuring. This would be marginally positive for the group as it could lead to tax savings. However, the overall impact of the deal would be negative if it includes an EPS-dilutive rights issue. Our DDM-based target price (COE of 11.8%; LT growth of 4%) is intact. Despite the possible rights issue, RHBCap remains an Add and our top pick for the sector due to the potential re-rating catalysts of: 1) robust loan growth, and 2) benefits from the IGNITE 17 transformation programme.
What Happened
Over the weekend, The Edge published an article stating that RHBCapital (RHBCap) is considering internal reorganisation that would make RHB Bank the listed entity, taking over RHBCap, and the holding company for all the entities in the group. The purpose of this move is to improve the group’s tax efficiency, as it would enable RHB Bank to use its income to reduce some of its tax expenses. The deal may involve a rights issue that could lower its double-leverage ratio from above 130% now to 120%.
What We Think
The news was not a surprise to us because the management has been guiding that it plans for corporate restructuring (please refer to our reports on 1 Mar 15 and 17 Mar 13). However, The Edge article provided more clarity on the restructuring, including management’s rationale and the possible deal structure. The proposed new structure is akin to those of Maybank and Public Bank, whereby the commercial banks house all the entities in the group. The internal reorganisation per se would be slightly positive for the group as it would lead to some tax savings. However, the overall impact of the deal would be negative if it involves a rights issue due to its dilutive effect on EPS. The management was not able to provide us with guidance on the quantum of the rights issue as the group is still in discussions with the central bank.
What You Should Do
Stay invested in RHBCap for its bright earnings outlook, emanating from: 1) robust loan growth, and 2) the benefits from its IGNITE 17 transformation programme. We would revise our target price and recommendation upon the announcement of the internal reorganisation exercise.
Source: CIMB Daybreak - 06 April 2015
