Company Name: RHB CAPITAL BHD
Research House: HWANGDBS
KUALA LUMPUR: Hwang DBS Vickers Research said RHB Cap remains one of the cheapest large cap banks in Malaysia at 1.7x FY11 book value against sector (weighted) average of 2.3x.
'At ROE levels of 15-16% and trading at only 1.7x FY11 BV, RHB Cap makes for an attractive M&A target. We have a Buy recommendation on RHB Cap with a RM10 TP,' it said on Friday, April 22.
HDBSVR cited The Edge Financial Daily that there are three potential parties vying for a stake in RHB Cap. Abu Dhabi Commercial Bank (ADCB) has engaged advisors Goldman Sachs and Bank of America-Merrill Lynch to run the auction for the sale of its 25% stake in RHB Cap.
Carlyle Group and TPG Capital (private equity firms) are in talks to launch a joint bid for RHB Cap for US$1.5bn.
Another two parties potentially looking at the stake (as mentioned in The Edge Financial Daily) are Australia and New Zealand Group Ltd (ANZ) and DBS Group Holdings (DBS).
These permutations suggest that there could possibly be further M&As within the domestic banks.
The Edge Financial Daily mentioned that it is unclear how Malaysian authorities would react to DBS' possible bid on RHB Cap given that Singapore's Temasek owns a 14.8% stake in Alliance Financial Group (AFG). It is understood that a foreign strategic investor cannot have more than one stake in domestic banks.
'If ANZ were to acquire a stake in RHB Cap, it would need to merge AMMB with RHB Cap. This would allow ANZ to have a stake in a larger piece of the Malaysian banking landscape,' said HDBSVR.
It was reported earlier that ANZ was keen to increase its stake in AMMB. ANZ currently owns 24% of AMMB. Even though the threshold for foreign shareholding remains capped at 30%, total returns as a shareholder would be larger for ANZ in an enlarged AMMB-RHB Cap scenario.
Carlyle Group and TPG Capital are private equity firms. TPG has an Indonesia arm, TPG Nusantara, which currently owns 59.7% of Bank Tabungan Pensiun Nasional (BTPN) and actively plays a role in management of the bank and has seen the bank doing well since its acquisition in 2008.
'We are not just implying temporary value enhancement in banks for the sake of taking advantage of potential general offer valuations. Our M&A theme for the Malaysian banks include potential foreign strategic tie-ups that could enhance value and boost competitiveness of the banks.
'The target banks will benefit from input the potential stakeholders could bring to the table to improve stand-alone value propositions, e.g. AMMB-ANZ,' it said.