Thursday 28 Mar 2024
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KUALA LUMPUR (Apr 14): RHB Capital Bhd (RHBCap) fell as much as 16 sen or 2.07% today, following the bank’s announcement of an internal restructuring, which will see the transfer of its listing status to RHB Bank Bhd.

At 2.32pm, RHBCap (fundamental: 1.5; valuation: 2.1) regained some losses to settle at RM8.04, still down 16 sen or 1.95%, after some 136,900 shares changed hands.

In a filing yesterday, the bank said the internal reorganisation will entail the transfer by RHBCap of its entire equity interest in RHB Investment Bank Bhd and RHB Insurance Bhd’s subsidiaries, and other operating units of RHBCap which will be determined later, to RHB Bank.

The bank also announced a rights issue to raise proceeds of up to RM2.5 billion and the distribution of its entire shareholding in RHB Bank, to make way for the transfer of RHBCap’s listing status to RHB Bank.

In a note today, AllianceDBS Research Sdn Bhd said the corporate exercise is positive for the group, and maintained a “hold” call on RHBCap with an unchanged target price of RM8.20.

"Pricing of the rights will be determined later but the management has hinted at a 20%–30% discount to RHBCap’s share price.

“We estimate the entire corporate exercise would dilute earnings per share by about 10% but would be returned on equity accretive because of higher earnings, and smaller equity base because of lower goodwill," AllianceDBS said.

The research house said it was keeping its recommendation on RHBCap, pending new financial targets, due for announcement by the end of June 2015.

While it viewed the development positively, AllianceDBS noted that the Malaysian banking sector remains challenging in 2015 with moderate loan growth.

AllianceDBS also expects the banking sector's net interest margin to be pressured by higher funding cost as capital market slows. The research firm also cited higher credit costs and operating costs due to the goods and services tax as challenges affecting the banking sector.

(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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