Friday 29 Mar 2024
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KUALA LUMPUR (Jan 19): Shares of Malayan Banking Bhd rose as much as 1.27% on the report that the largest banking group in the country may explore the possibility of a merger with RHB Capital Bhd.

As of 10.53am, shares of Maybank (fundamental score: 1.5; valuation score: 1.3) was traded at RM8.70, up 10 sen or 1.16% with 1.31 million share traded.

The counter had earlier climbed to a high of RM8.71 representing up 1.27% or 11 sen in the early morning trades.

In a report published in the latest issue of The Edge Weekly, a senior Maybanker acknowledged that in the bank's "scenario planning" of the potential  acquisition of local lenders, RHB had emerged as the top choice.

However, he and other bankers pointed out that Maybank was unlikely to make a move immediately.

They said: "The reasons for the mega bank merger involving CIMB Group Holdings Bhd, RHB and Malaysia Building Society Bhd (MBSB) was called off were valid concerns and the same concerns would be applicable to us, so we have to think hard about this."

Another senior Maybanker pointed out that the bank and RHB had too many overlapping businesses and functions.

"In a merger, there would have to be staff redundancies, things like VSS (voluntary separation scheme), which employees are unlikely want to take up in the current economies climate.

"So, it really make more sense for Maybank to seek opportunities to fill business gaps instead," he added.

Meanwhile, in a note Jan 18, CIMB Research retained its "Add" rating on Maybank with unchanged target price of RM8.60 and said it would not be surprised if Maybank were to explore the possibility of a merger with RHB as it had attempted to before.

According to CIMB, the purchase of RHB Cap would be earnings per share (EPS) neutral if done via share swap but could dilute Maybank’s financial year 2016 (FY16) EPS by 3.8% if financed by rights issu.

It said Maybank would have to bear high integration costs during the 1 to 2 years after the merger, while the cost synergies would only emerge after that.

“Our dividend discount model (DDM)-based target price (cost of equity [COE] of 9.7%; LT growth of 4%) is intact," the firm added.

CIMB continued to rate Maybank with Add, premised on its growth potential in the region, especially for its Indonesian and investment banking operations.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.) 

 

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