RHB

Re: RHB

Postby winston » Wed May 24, 2017 9:24 pm

not vested

Affin Hwang Research ups RHB Bank target price

KUALA LUMPUR: Affin Hwang Capital Research is retaining its Hold rating for RHB Bank and raised its Gordon Growth-derived 12 month price target to RM5.35 from RM5.20.

It said on Wednesday this was based on a 2018 estimates 0.87 times price-to-book value (P/BV) multiple (previously 0.9 times).

“Overall, we are of the view that there will be more opportunities for growth as indicated by the stronger 1Q17 GDP growth of 5.6% and the recovery in Malaysia export growth.

“A more robust deal pipeline for loans and capital markets should bode well for the industry. Presently, our loan growth expectation for RHB remains unchanged at 5%-6% p.a. (FY17-19E),” it said.

Affin Hwang Research lowered its2018 return on equity (ROE) assumption to 8.5% from 8.6%; and cost of equity remains 9%.

“We estimate that a total redemption of RM3bil in Tier-2 sub-notes and senior debt, coupled with a new Sukuk issue of RM250mil (at 4.88%), would result in annual interest expense savings of RM76m, while net interest margins (NIM) would improve to 2.12% to 14% in FY17-19. Hence, we increase our FY17-19E EPS by 1.4% to 2.5%,” it said.

Affin Hwang Research said RHB Bank’s 1Q17 net profit of RM500mil (-11% on-year, +91.5% on-quarter) was in line with expectations. The silver lining in 1Q17 was mainly a sequential decline in the cost-to-income ratio (49%) and a higher current account and savings accounts (CASA) ratio at 26.2% (+2 percentage points on-year).

Asset quality, reflected by the GIL ratio, appears stable on-quarter though it has deteriorated versus 1Q16. The additional allowances on-year were from business banking and certain O&G sector accounts.

“Overall, we believe the economic outlook is turning more positive and should bode well for the sector. Maintain Hold, PT raised to RM5.35 from RM5.20 as we roll forward to CY18E,” it said.

RHB Bank (RHB) saw a rebound in on-quarter net profit by 91.5% to RM500.3mil, though it was down by 11.5% on-year.

“The overall results were within our and market expectations. At the operating level, RHB’s 1Q17’s net income was marginally lower by 1.7% on-year though it improved by 5.2% on-quarter (on marked-to-market gains),” it pointed out.

The 1Q17 fund-based income (-1.4% on-year, -2.2% on-quarter) was mainly affected by weaker performance at retail banking and corporate banking, and the group NIM is holding up well, though down by 1bp on-quarter to 2.17% (1Q16: 2.22%).

Affin Hwang Research said higher impaired loan allowances in 1Q17 of RM132.4mil (+64.8% on-year ) were driven primarily by the business banking division and a few oil & gas sector corporate accounts which have been classified as impaired since last year.

Compared to 4Q16, allowances declined sharply by 57% and the outlook appears more stable. Management has also guided that 2017’s credit cost could possibly average below the 35bps recorded in 1Q17 (1Q16: 22bps; 4Q16: 79bps). This could imply upside to our current assumption of 44bps in 2017,” it said.

Source: The Star

http://www.thestar.com.my/business/busi ... HqIsTpe.99
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Re: RHB

Postby winston » Wed May 24, 2017 9:24 pm

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Affin Hwang Research ups RHB Bank target price

KUALA LUMPUR: Affin Hwang Capital Research is retaining its Hold rating for RHB Bank and raised its Gordon Growth-derived 12 month price target to RM5.35 from RM5.20.

It said on Wednesday this was based on a 2018 estimates 0.87 times price-to-book value (P/BV) multiple (previously 0.9 times).

“Overall, we are of the view that there will be more opportunities for growth as indicated by the stronger 1Q17 GDP growth of 5.6% and the recovery in Malaysia export growth.

“A more robust deal pipeline for loans and capital markets should bode well for the industry. Presently, our loan growth expectation for RHB remains unchanged at 5%-6% p.a. (FY17-19E),” it said.

Affin Hwang Research lowered its2018 return on equity (ROE) assumption to 8.5% from 8.6%; and cost of equity remains 9%.

“We estimate that a total redemption of RM3bil in Tier-2 sub-notes and senior debt, coupled with a new Sukuk issue of RM250mil (at 4.88%), would result in annual interest expense savings of RM76m, while net interest margins (NIM) would improve to 2.12% to 14% in FY17-19. Hence, we increase our FY17-19E EPS by 1.4% to 2.5%,” it said.

Affin Hwang Research said RHB Bank’s 1Q17 net profit of RM500mil (-11% on-year, +91.5% on-quarter) was in line with expectations. The silver lining in 1Q17 was mainly a sequential decline in the cost-to-income ratio (49%) and a higher current account and savings accounts (CASA) ratio at 26.2% (+2 percentage points on-year).

Asset quality, reflected by the GIL ratio, appears stable on-quarter though it has deteriorated versus 1Q16. The additional allowances on-year were from business banking and certain O&G sector accounts.

“Overall, we believe the economic outlook is turning more positive and should bode well for the sector. Maintain Hold, PT raised to RM5.35 from RM5.20 as we roll forward to CY18E,” it said.

RHB Bank (RHB) saw a rebound in on-quarter net profit by 91.5% to RM500.3mil, though it was down by 11.5% on-year.

“The overall results were within our and market expectations. At the operating level, RHB’s 1Q17’s net income was marginally lower by 1.7% on-year though it improved by 5.2% on-quarter (on marked-to-market gains),” it pointed out.

The 1Q17 fund-based income (-1.4% on-year, -2.2% on-quarter) was mainly affected by weaker performance at retail banking and corporate banking, and the group NIM is holding up well, though down by 1bp on-quarter to 2.17% (1Q16: 2.22%).

Affin Hwang Research said higher impaired loan allowances in 1Q17 of RM132.4mil (+64.8% on-year ) were driven primarily by the business banking division and a few oil & gas sector corporate accounts which have been classified as impaired since last year.

Compared to 4Q16, allowances declined sharply by 57% and the outlook appears more stable. Management has also guided that 2017’s credit cost could possibly average below the 35bps recorded in 1Q17 (1Q16: 22bps; 4Q16: 79bps). This could imply upside to our current assumption of 44bps in 2017,” it said.

Source: The Star

http://www.thestar.com.my/business/busi ... HqIsTpe.99
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Re: RHB

Postby winston » Wed May 31, 2017 10:08 pm

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RHB Bank, AMMB suspended as merger talks begin

BY JOSEPH CHIN

KUALA LUMPUR: RHB Bank Bhd and AMMB Holdings Bhd have requested for a suspension in the trading of their securities on Thursday.

Banking analysts said on Wednesday the request was for the major shareholders of both banks to begin merger talks.

RHB Bank closed up one sen to RM5.39 while AMMB closed up 11 sen to RM5.21.

Earlier on Wednesday, AMMB announced a strong set of earnings in the fourth quarter.

It reported a 20% increase in earnings at RM335.81mil from RM280.02mil a year ago boosted by higher net interest income (NII).

Its revenue was RM2.14bil compared with RM2.10bil a year ago. Its earnings per share were 11.17 sen compared with 9.32 sen. It announced a dividend of 12.6 sen a share.

Source: The Star

http://www.thestar.com.my/business/busi ... vSw1UjQ.99
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Re: RHB

Postby winston » Wed May 31, 2017 10:14 pm

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Malaysia's RHB, AmBank to begin merger talks - sources

* Both banks seek trading suspension of shares on Thursday
* Banks receive central bank nod to commence talks - sources

By Liz Lee and Praveen Menon

KUALA LUMPUR, May 31 RHB Bank Bhd and AMMB Holdings Bhd (AmBank) will begin merger talks to create one of Malaysia's biggest lenders, two sources familiar with the matter said on Wednesday.

The banks could announce as early as Thursday they have received approval from the central bank to commence merger negotiations, the sources said, speaking on condition of anonymity as the plans are private.

RHB, Malaysia's fourth biggest bank, would be the acquirer in the potential merger, the sources said, adding the shareholding structure was still being worked out. AmBank is the country's sixth biggest bank.

AmBank has a market capitalisation of 15.7 billion ringgit ($3.67 billion) and a complete takeover by RHB could be one of the biggest deals in Malaysia in recent years.

RHB and AmBank on Wednesday requested the national stock exchange suspend trading in their shares on Thursday, "pending a material announcement."

AmBank declined to comment. An RHB spokeswoman said the company would make an official announcement in due course.

ANZ Banking Group, which owns a 24 percent stake in Ambank, has been weighing a sale of its stake since early last year, partly due to AmBank's involvement in a political scandal linked to state fund 1Malaysia Development Berhad and Prime Minister Najib Razak, sources have said.

Najib has been buffeted by allegations of graft and financial mismanagement at 1MDB and in particular by revelations of the transfer of hundreds of millions of dollars into his AmBank accounts in 2013.

In 2015, AmBank was slapped with a 53.7 million ringgit fine by the Malaysian central bank for breaching certain financial regulations.

Deal activity in Malaysia has been subdued in recent years amid slowing economic growth and a slump in oil prices, and merger talks in the banking industry in particular have been unsuccessful.

In 2014-15, RHB, CIMB Holdings and Malaysian Building Society Bhd were in talks for a three-way $20 billion merger to create Malaysia's largest bank. But the talks collapsed as the parties failed to agree on the terms.

Malaysian Building Society then entered into talks with Bank Muamalat Bhd for a merger that would have created the largest standalone Islamic bank in Malaysia, but the talks fell through. It is currently in merger talks with Asian Finance Bank Bhd.

Source: Reuters
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Re: RHB

Postby winston » Thu Jun 01, 2017 7:45 am

RHB-AMMB to begin merger talks

BY GURMEET KAUR and INTAN FARHANA ZAINUL

PETALING JAYA: After more than a year of speculation, RHB Bank Bhd and AMMB Holdings Bhd are to begin talks for a merger.

Both banks will make an announcement about this today.

RHB and AMMB had requested for a suspension in the trading of their shares yesterday evening, “pending a material announcement”.

Sources said that the banks would announce that they had received the nod from Bank Negara to initiate merger talks.

If the deal materialises, then the merged entity would end up becoming the country’s fourth-largest bank by asset size.

According to banking sources, RHB is likely to be the acquiring bank, making an offer to the shareholders of AMMB that may involve cash and shares.

AMMB’s major owner is Australia and New Zealand Banking Group Ltd (ANZ) of Australia with a 23.78% stake, while its second-largest shareholder is founder Tan Sri Azman Hashim, who has an effective stake of 12.97%.

RHB, meanwhile, is 41%-owned by the Employees Provident Fund (EPF).

Both banks have a common shareholder in the EPF, with the pension fund also holding a 10.04% stake in AMMB, according to Bloomberg data.

The other substantial shareholders of RHB are Aabar Investments PJS with a 17.75% stake and OSK Holdings Bhd with 10.13%.

Based on the figures as at the end of last year, the combined assets of RHB-AMMB stood at RM368.3bil, trailing behind Public Bank Bhd’s RM389.73bil. RHB is currently the fourth-largest lender, while AMMB is the sixth largest based on asset size.

In terms of branch network, RHB has 278 branches, while AMMB’s totals 175 branches.

An analyst said while RHB and AMMB would make a good fit, both banks are operating in the same space that would see duplications that could likely cause potential layoffs.

AMMB had in the recent past been seen as a merger and acquisition candidate, considering that its major shareholder ANZ reportedly had a plan to exit from the banking group as part of a larger plan to exit from minority banking stakes in the region.

Last year, the Melbourne-based bank made a A$260mil (RM773.07mil) impairment loss on its stake in AMMB, which was read as a signal of its intention to dispose of its strategic stake.

ANZ had bought into AMMB in 2006 in two tranches averaging RM3.63 a share or RM2.58bil, which translated into a price-to-book (P/B) ratio of 1.96 times.

According to banking sources, Azman may also be more open to selling, as he is retiring from almost all his positions within the banking group over the next two years.

The veteran banker is also said to have a say in who takes up the ANZ stake, as he has the first right of refusal to it.

Over at RHB, its previous banking deal was the proposed three-way merger deal involving itself, CIMB Group Holdings Bhd and Malaysia Building Society Bhd.

However, the deal was called off in January 2015 because RHB’s substantial shareholder Aabar had reportedly sought a high exit price.

AMMB closed up 11 sen to RM5.21 and is trading at a P/B value of 0.98 times. RHB was last done at RM5.39, which translated to a P/B of 0.97 times.

Meanwhile, earlier in the day, AMMB reported a 20% increase in earnings to RM335.81mil from RM280.02mil a year ago, boosted by higher net interest income for its fourth quarter ended March 31.

Its revenue came in at RM2.14bil compared with RM2.10bil a year ago. Earnings per share was at 11.17 sen compared with 9.32 sen previously.

The banking group has announced a dividend of 12.6 sen a share.

Source: The Star

http://www.thestar.com.my/business/busi ... 7KOsxqL.99
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Re: RHB

Postby winston » Thu Jun 01, 2017 10:57 am

AMMB and RHB to explore merger — sources

by Adeline Paul Raj & Joyce Goh

PETALING JAYA: RHB Bank Bhd and AMMB Holdings Bhd, both of which have suspended the trading of their shares on Bursa Malaysia today, are expected to announce that the duo are keen on exploring a merger, sources said.

Should the two banking groups merge, this will strengthen RHB Bank’s current position as the country’s fourth-largest banking group, in terms of assets.

As it stands now, RHB is already the fourth-largest lender among the eight domestic banking groups, and AMMB, the sixth.

AMMB scheduled an analyst results briefing yesterday. But it was cancelled at the eleventh hour. “We had dialled in and were waiting for the briefing to start but they cancelled it and asked us to wait for a ‘big’ announcement,” says a local banking analyst.

That a potential RHB-AMMB merger could be on the cards is not exactly surprising. Rumours that the two may pair up have long made their rounds in the industry.

The two have a common shareholder in the Employees Provident Fund (EPF), which has a 40.7% stake in RHB and 9.95% stake in AMMB.

In its March 20 issue, The Edge Malaysia weekly reported that talk of a potential merger between the mid-sized lenders had resurfaced in the banking circle. It cited a source as saying that an adviser — a big accounting firm — had been working on certain aspects of the prospective union.

“The firm was brought on board to help study this. It’s been kept very hush-hush, given the sensitivity [of the matter]. It’s a very small group that is aware of this,” the report said.

The report also cited the source as saying that there had been preliminary discussions on the matter among some of the key shareholders of both banks over the last few months.

AMMB has long been seen as an M&A candidate. Its largest shareholder, Australia and New Zealand Banking Group Ltd (ANZ), said last November that it would be looking to sell its 23.78% stake in the Malaysian lender over the next 12 to 18 months.

Private equity firms and some Chinese banks had previously shown interest in the stake, but nothing came out of it.

Its second-largest shareholder, meanwhile, founder and chairman Tan Sri Azman Hashim, who holds a 12.97% stake, may be more open to selling as he is retiring from almost all his positions within the banking group over the next two years.

Over at RHB, its largest shareholders after the EPF are Aabar Investment PJS (17.75%) and OSK Group’s Tan Sri Ong Leong Huat (10.13%).

RHB and AMMB combined, with total assets of RM365.88 billion, would be the largest by assets behind Malayan Banking Bhd, CIMB Group Holdings Bhd and Public Bank Bhd — based on their asset size as at end-2016.

The share price of AMMB and RHB have been on the rise since the start of the year. AMMB has gained 22% year to date to close at RM5.21 yesterday, trading at price-to-book of 0.98 times, while RHB has increased 15% and trading at price-to-book of 0.97 times.

Source: The Edge

http://www.theedgemarkets.com/article/a ... 94-sources
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Re: RHB

Postby winston » Thu Jun 01, 2017 8:29 pm

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Malaysia's RHB, AmBank in merger talks to form bank worth $9 billion

By A. Ananthalakshmi | KUALA LUMPUR

Malaysia's RHB Bank (RHBC.KL) and AMMB Holdings (AmBank) (AMMB.KL) are starting merger talks to form a group worth about $9 billion, in what is likely to be the nation's biggest banking deal.

RHB and AmBank have received the nod from the Malaysian central bank to commence the merger negotiations, they said in a joint statement on Thursday.

The transaction is expected to be an all-share deal and the two banks have until Aug. 30 to exclusively discuss a deal, they said.

A merger would reinforce RHB's ranking as the fourth largest Malaysian bank by assets behind Maybank (MBBM.KL), CIMB Group Holdings (CIMB.KL) and Public Bank (PUBM.KL). AmBank is currently the country's sixth biggest bank.

Sources told Reuters on Wednesday that RHB would be the acquirer in the potential merger. AmBank has a market capitalization of 15.7 billion ringgit ($3.66 billion), while RHB has a market value of about $5.0 billion.

A full takeover at those price levels by RHB would put the deal above the 2006 acquisition of Southern Bank by Bumiputra-Commerce Holdings for $1.74 billion, making it the biggest Malaysian banking transaction, according to Thomson Reuters data. Bumiputra-Commerce eventually became the current CIMB Group after a series of mergers and a rebranding exercise.

Rumors of a merger between RHB and AmBank go as far back as 2007, though the companies have denied it several times in the past.

Trading in shares of RHB and AmBank were suspended, ahead of the announcement. They will resume trading on Friday.

Source: Reuters

http://mobile.reuters.com/article/innov ... SKBN18S4BM
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Re: RHB

Postby winston » Fri Jun 02, 2017 8:23 am

Not vested in RHB; Vested in OSK

RHB-AMMB merger likely to be all-share deal

BY GURMEET KAUR

Analysts say stock swap is simple, but the issue will be valuation

PETALING JAYA: In what would be the biggest banking deal in recent years if it materialises, RHB Bank Bhd and AMMB Holdings Bhd have announced that they have obtained approval from Bank Negara for the two parties to commence discussions for a proposed merger.

The banks said they envisaged that the transaction would be an all-share merger.

The banking groups, in their filings with Bursa Malaysia, said that the central bank vide its letter dated June 1 stated that it had no objection to the companies starting negotiations for a possible merger of their businesses and undertakings.

The approval is valid until Nov 30, 2017.

Following Bank Negara’s approval, both parties on the same day entered into an exclusivity agreement to negotiate and finalise pricing, structure and other relevant terms and conditions for the proposed merger. The exclusivity agreement will expire on Aug 30, 2017.

“There will be an automatic extension of the exclusivity period upon a submission being made to Bank Negara for an application for the approval of the Minister of Finance for the proposed merger by any or both of the parties, until the date of execution of the relevant definitive agreement(s) to effect the proposed merger,” the banks said in their respective filings with the stock exchange.

“It is envisaged that the transaction will effectively be an all-share merger,” the banks said in a joint statement.

Both RHB Bank and AMMB are currently trading at 0.9 times price-to-book value (BV) based on Tuesday’s closing prices, indicating that the swap ratio might not be too far from parity.

But it would all depend on the premium RHB Bank is willing to pay assuming it’s the acquiring bank, said an analyst when contacted.

“A share swap is simple, but the issue will be valuation.

“From here on, both banks will have to conduct the due diligence to look at each other’s books to identify duplications and synergies that can be derived,” a banking analyst said.

The proposed merger between RHB Bank and AMMB will not change RHB Bank’s ranking by asset size as the fourth-largest bank in Malaysia but at a combined RM368.3bil, it would bring it very close to Public Bank Bhd’s RM389bil asset size.

AMMB is now the country’s sixth-largest lender in terms of asset size.

RHB Banking Group managing director Datuk Khairussaleh Ramli said the bank was confident that if the proposed merger took place, it would create greater synergy for the enlarged banking group, benefiting its shareholders, customers, employees and all other stakeholders.

“A merger of RHB Banking Group and AMMB will create a stronger fourth-largest banking group, creating scale and market leadership across key business segments,” he said in the joint statement.

Meanwhile, AMMB group chief executive officer Datuk Sulaiman Mohd Tahir said the proposed merger marked a new chapter that is opening in the banking group’s history, coming at a transformative time as it moved closer to achieving its Top 4 goals.

“I am positive that the proposed merger with RHB Banking Group will create a stronger business and financial presence. Our combined strength in key business segments, particularly in retail and investment banking, will bode well for us as we move forward to achieve our goal of becoming a formidable banking group,” Sulaiman said.

AMMB’s major owner is Australia and New Zealand Banking Group Ltd (ANZ) of Australia with a 23.78% stake, while its second-largest shareholder is founder Tan Sri Azman Hashim, who has an effective stake of 12.97%.

RHB Bank, meanwhile, is 41%-owned by the Employees Provident Fund (EPF). The pension fund also holds a 10.04% stake in AMMB.

In May last year, ANZ wrote down its investment in AMMB to 0.9 times BV, which fuelled speculation that the Melbourne-based bank might be willing to relinquish its strategic stake in the bank for as low as one time BV, analysts said.

In an internal memo sent to RHB staff seen by StarBiz, Khairussaleh assured staff that should the discussions led to an agreement for a merger, the bank would take all the necessary steps to have a smooth integration of its business and operations with AMMB.

Meanwhile, it is understood that AMMB had also conducted a townhall meeting yesterday.

UOB Kay Hian in a report yesterday noted that the proposed merger would require a fair degree of cost rationalisation, given the degree of operational and revenue duplication between AMMB and RHB Bank. It noted that the combined entity would have 453 branches versus Malayan Banking Bhd’s 363 branches.

Both banking groups also have a sizeable corporate and investment banking franchise.

A potential merger between the two banks has been brewing for the past few years and resurfaced in recent months. Shares in RHB Bank and AMMB were suspended yesterday, pending the material announcement.

RHB Bank was last traded at RM5.39, while AMMB closed at RM5.21. Trading in the shares on Bursa Malaysia will resume today.

Source: The Star

http://www.thestar.com.my/business/busi ... jP7pPhl.99
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Re: RHB

Postby winston » Fri Jun 02, 2017 7:59 pm

Doubts over merger drag on stocks of Malaysian lenders RHB and AmBank

By A. Ananthalakshmi and Liz Lee

Shares of RHB Bank (RHBC.KL) and AMMB Holdings (AmBank) (AMMB.KL) fell on Friday on concerns that a potential merger between the two lenders in Malaysia's biggest ever banking deal would create little value for investors.

RHB and AmBank said on Thursday they are starting merger talks to form a group worth about $9 billion. Sources have told Reuters that RHB would be the acquirer in the potential merger, reinforcing its ranking as the fourth largest Malaysian bank by assets.

RHB confirmed in a call with analysts on Thursday that it would be the acquirer in the all-stock deal, and indicated it would pay AmBank shareholders a one-time multiple of AmBank's book value, according to five analysts who participated in the call.

That valuation is not far from AmBank's current market worth of $3.7 billion, which analysts say is a 0.9 to 1-time multiple.

"I see this deal as a negative for AmBank shareholders unless they can bargain a cash portion in the deal," said Hong Leong Investment Bank analyst Khairul Azizi Kairudin, adding he was not optimistic the deal will be completed if it is a share-swap agreement.

The merger would need approval from 50 percent of RHB shareholders for the deal to go through and 75 percent of AmBank shareholders, RHB told analysts on the call.

Shares of AmBank fell as much as 1.7 percent on Friday, while RHB's shares slumped as much as 4.3 percent. The broader Malaysian stock market .KLSE was up 0.7 percent.

One AmBank shareholder told Reuters he was unlikely to take up the offer at the valuation RHB was proposing.

"Public-listed companies should come with some premium," he said, declining to be named citing sensitivity of the matter.

AmBank's top shareholders are keen to sell their stakes. ANZ Banking Group (ANZ.AX), which owns a 24 percent stake, has been weighing a sale of its stake since early last year, sources have said.

AmBank Chairman Azman Hashim, the second biggest shareholder with a 13 percent stake, has expressed his intention to pare the shareholding, according to sources.

Analysts also said on Friday that for the RHB-AmBank merger to bring significant benefits to the combined company, the lender will have to cut costs substantially, a process that could take years.

For the merged bank to realize an increase in return of equity from the current 8.3 percent to 10 percent, it will have to shed about 18 percent of its combined headcount of roughly 25,000 staff and 20 percent of other operating costs, said UOB Kay Hian analyst Keith Wee Teck Keong.

Source: Reuters

http://www.reuters.com/article/us-amban ... ls%20Today
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Re: RHB

Postby winston » Sat Jun 03, 2017 10:56 am

not vested

Malaysian Banks: Will the RHB & AMMB Merger Succeed?

By Isabella Zhong

Malaysia’s central bank has given the thumbs up to a merger between RHB Bank (1066.MY) and AMMB Holdings (1015.MY). But the potential deal is still very much in its early days.

Nomura analyst Tushar Mohata notes:

At the moment it is not clear whether all the major shareholders for AMMB and RHB are all on board with the merger proposal in its current form, but we should get more clarity on this in the coming days.

We believe that it is too early to quantify potential cost synergies (through headcount and branch network rationalization) and to say for certain whether the deal will go ahead.

However, we feel that AMMB and RHB investors are likely to adopt a wait-and-watch approach in the coming months despite industry challenges such as weak loans growth, falling ROEs and the upcoming MFRS 9 accounting standard.

At least 75% of AMMB’s shareholders and 50% + 1 of RHB’s shareholders will need to approve the merger for the deal to proceed. If the deal proceeds, RHB will acquire the assets and liabilities of AMMB at an equity valuation of one times book value, which is in line with the 0.98 times that AMMB fetches. RHB trades at 0.97 times. The deal will be financed through a share swap in which new shares will be issued for the combined entity.

While some investors remain skeptical about whether the RHB-AMMB merger would succeed given the failed attempt by CIMB, RHB and MBSB to merge in 2014, Mohata thinks the deal stands a good chance.

Risks to the deal lower than 2014’s failed CIMB-RHB-MBSB merger While some investors might be uncertain if the deal will go through (given the previous merger attempt between RHB, CIMB and MBSB in 2014 collapsed), we believe that overall, the chances of an RHB-AMMB merger happening are definitely higher (CIMB-RHB-MBSB merger was much more complicated, given three entities were involved, and the disparate valuations at which the stocks were trading at that time).

As such, we expect the stock prices to remain supported at 1x P/B for the time being, and accordingly upgrade both RHB and AMMB to Neutral, with revised TPs of MYR5.60 (RHB) and MYR5.30 (AMMB).

Mohata’s preliminary numbers for the merged entity also look promising.

Based on our preliminary analysis on the merged entity, we calculate that
1) with assets of ~MYR368bn, newco will be the fourth-largest bank in Malaysia by asset size with an indicative market cap of USD8.7bn,
2) however, it will be the third-largest bank by market share in domestic loans and deposits (14-15% each, next to Maybank and Public Bank),
3) it could potentially be #1 in asset management (by AUM), general insurance, stock broking and #2 in Islamic banking.

Source: Barron's Asia

http://www.barrons.com/articles/malaysi ... 1496373372
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