Abu Dhabi Commercial Bank’s boost for RHB Cap

KUALA LUMPUR: Abu Dhabi Commercial Bank’s (ADCB) acquisition of a 25% stake in RHB Capital Bhd is positive for RHB Capital as it can potentially grow its banking franchise in the booming Gulf States, although not quantifiable for now.

Aseambankers Equity Research said the deal could help RHB Capital’s transformation to move up the value-chain and to be one of the top three financial groups in Asean by 2020.

“While the deal will not trigger a general offer (GO) for the remaining RHB Capital’s shares, it has set a new benchmark for the latter’s share price.

ADCB had acquired the 25% stake in RHB Capital at RM7.20 per share for RM3.87bil from the Employees Provident Fund (EPF).

“At RM7.20, this represents a good 50% premium over the RM4.80 price tag that EPF paid last year to gain control of RHB Capital,” Aseambankers Research said.

The latest deal valued RHB Capital at 2.2 times price/book for 2007, quite similar to valuations for the 20.2% block of EON Capital Bhd shares transacted early this year at 2.1 times, it said.

“In terms of valuation, ADCB is paying a price-to-earnings ratio (PER) of 20.1 times on historical FY07, and 17.6 times on potential FY08 earnings, according to our estimates,” it said.

The acquisition would see ADCB emerging as the second single largest shareholder behind EPF, whose stake would be trimmed to 57% from 82%.

The EPF had also asked for a six-month extension to lower its shareholding in RHB Cap to 35% from the earlier deadline of middle of this year. Japan’s Sumitomo Mitsui Banking Corp may also take up a 5% stake in RHB Capital, which would pare down EPF’s stake to 52%.

Aseambankers Research said the EPF still needed to place out another 17% of RHB Capital by the middle or end of this year.

Meanwhile, OSK Investment Research said ADCB’s entry should also be positive as the latter was a leading full-service commercial bank operating in the Gulf Cooperation Council (GCC) region. ADCB was also strong in the retail, commercial, corporate and high net worth segments in United Arab Emirates (UAE).

“With this new alliance, both RHB Capital and ADCB can now position themselves to leverage on growing business flows between GCC and Asean as well as strengthen RHB Capital’s position as a global/regional Islamic banking player,” it said.

OSK Research said it expected the long-waited strategic tie-up with ADCB could be positive to the share price performance in the short-run. However, it believed the share price could still be traded below ADCB’s purchase price of RM7.20/share, and possibly even below its target price of RM7.

Assuming a 25%-strategic holding premium, it still believed RHB Capital’s share price could trade up to RM5.75/share in the immediate term.

“In the longer term, we are optimistic over the group’s prospect, as the financials of the group are fast improving amidst decent top line growth,” it said.

OSK Research said this latest foreign strategic tie-up should be value accretive for RHB Capital, especially in Islamic banking. It maintained its forecast and target price of RM7 for now.