Stock Name: RHBCAP
Company Name: RHB CAPITAL BHD
Research House: TA
RHB Capital Bhd
(March 8, RM5.75)
Maintain buy at RM5.70, target price at RM7.10: RHBCap announced that it is negotiating with TM Asia Life Malaysia Bhd (TM Asia) to establish a mutually exclusive 10-year bancassurance alliance in Malaysia.
The alliance is to sell, market and promote conventional life insurance products developed by TM Asia for sale by RHB Bank via its network of offices, branches and other alternative distribution channels developed jointly by them.
The alliance will be divided in two five-year terms - Term One and Term Two. TM Asia will pay RHB Bank a special incentive during Term One (and Term Two if RHB Bank meets the annual or cumulative annual milestones). According to the announcement, TM Asia will also pay an exclusivity fee of RM100 million in consideration of RHB Bank's commitment to the 10-year exclusive bancassurance relationship.
The arrangement is similar to the alliance between Public Bank (PBB) and ING Asia/Pacific in 2007. Here, we are positive over the potential tie-up between RHB Bank and TM Asia. We believe RHBCap would be able to reach another milestone of its Transformation Programme Initiatives via this potential alliance with TM Asia (after earlier negotiations for the establishment of a bancassurance alliance between RHB Bank and AIA had ceased).
We believe the tie-up with TM Asia would be able to enhance RHB Bank's operating income.
We also forecast the RM100 millionn upfront fee would help boost RHBCap's financial year ending Dec 31, 2010 net profit by close to 6%. We are not imputing the upfront fee or impact from this tie-up into our earnings estimates at this juncture pending a 90-day due diligence exercise to be undertaken by TM Asia.
No change to earnings estimates. We are projecting FY10/FY11/FY12 net profit to rise by 10.2%/15.5%/17.2% year-on-year to RM1.32/RM1.53/RM1.79 billion. DPS (dividend per share) assumptions are also maintained at 24/28/35 sen for FY10/FY11/FY12 in line with management's commitment to maintain its dividend payout ratio of at least 30% per annum. Target price maintained at RM7.10 (based on the Gordon Growth Model, assuming cost of equity of 10%, ROE (return on equity) of 14.3% and sustainable long-term growth of 3% or an implied price/book value of 1.61 times.
We also believe the Employees Provident Fund's (RHBCap's major shareholder) commitment to reduce its stake to strategic investors will add further value to the RHB banking franchise. - TA Securities, March 8
This article appeared in The Edge Financial Daily, March 09, 2010.
Company Name: RHB CAPITAL BHD
Research House: TA
RHB Capital Bhd
(March 8, RM5.75)
Maintain buy at RM5.70, target price at RM7.10: RHBCap announced that it is negotiating with TM Asia Life Malaysia Bhd (TM Asia) to establish a mutually exclusive 10-year bancassurance alliance in Malaysia.
The alliance is to sell, market and promote conventional life insurance products developed by TM Asia for sale by RHB Bank via its network of offices, branches and other alternative distribution channels developed jointly by them.
The alliance will be divided in two five-year terms - Term One and Term Two. TM Asia will pay RHB Bank a special incentive during Term One (and Term Two if RHB Bank meets the annual or cumulative annual milestones). According to the announcement, TM Asia will also pay an exclusivity fee of RM100 million in consideration of RHB Bank's commitment to the 10-year exclusive bancassurance relationship.
The arrangement is similar to the alliance between Public Bank (PBB) and ING Asia/Pacific in 2007. Here, we are positive over the potential tie-up between RHB Bank and TM Asia. We believe RHBCap would be able to reach another milestone of its Transformation Programme Initiatives via this potential alliance with TM Asia (after earlier negotiations for the establishment of a bancassurance alliance between RHB Bank and AIA had ceased).
We believe the tie-up with TM Asia would be able to enhance RHB Bank's operating income.
We also forecast the RM100 millionn upfront fee would help boost RHBCap's financial year ending Dec 31, 2010 net profit by close to 6%. We are not imputing the upfront fee or impact from this tie-up into our earnings estimates at this juncture pending a 90-day due diligence exercise to be undertaken by TM Asia.
No change to earnings estimates. We are projecting FY10/FY11/FY12 net profit to rise by 10.2%/15.5%/17.2% year-on-year to RM1.32/RM1.53/RM1.79 billion. DPS (dividend per share) assumptions are also maintained at 24/28/35 sen for FY10/FY11/FY12 in line with management's commitment to maintain its dividend payout ratio of at least 30% per annum. Target price maintained at RM7.10 (based on the Gordon Growth Model, assuming cost of equity of 10%, ROE (return on equity) of 14.3% and sustainable long-term growth of 3% or an implied price/book value of 1.61 times.
We also believe the Employees Provident Fund's (RHBCap's major shareholder) commitment to reduce its stake to strategic investors will add further value to the RHB banking franchise. - TA Securities, March 8
This article appeared in The Edge Financial Daily, March 09, 2010.
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