Oct 2014, Issue 1

Mega bank emerges?

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Whats Our OPINION ?
Our hypothetical scenario
assumes that CIMB Islamic
Bank is priced at a P/BV of
1.7x (FY14E ROE: 14%) and
RHB Islamic Bank at 1.0x
(ROE: 9%), while MBSB
issues shares at a P/BV of
1.8x (ROE: 16%) to acquire
both entities. This
translates to an
acquisition cost of
MYR9.7b and we estimate
CIMB-RHB could end up
with a 58% stake in MBSB
while EPFs shareholding
would dilute to 27% from
2
65%. We estimate an FY14
ROE of 11.1% for the
enlarged MBSB and ascribe
a P/BV range of 1.3-1.5x,
which translates to a fair
value (FV) of MYR2.81-3.24
(+14-32% upside). Our base
case, being a P/BV
valuation of 1.4x implies
MYR3.03 FV or 23%
upside. We believe there
is a trading angle to MBSB.
Uncertainties now are
pricing and structure of
the Islamic banking
entities merger. If our
scenario does not pan out,
MBSB shareholders would
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still either get bought out
or get to exchange their
shares for the largest
financial institution in
Malaysia. The downside
risk is of the CIMB-RHB-
MBSB merger falling
through or the
pricing/structure of the
deal being significantly
different from what we
have envisaged.

Key Point: -
1. Using MBSB as a vehicle for Islamic Banking
2. Asset in total

A possibility of MBSB
not to become the
vehicle to become the
biggest Islamic bank
Upside 14-32%
Assuming P/BV Range
of 11.1% Base Case FV
Of MYR 3.03.
Depended on Net
Interest Income To
Support Growth


Lorem Ipsum
1
A possibility of MBSB to become a
Islamic Vehicle for three bank will
encounter a big tussle base on non
bank experience and non compliance
by MBSB. The expertise by MBSB is
questionable compare to the rest of
the bank. MBSB is leading comparative
to asset but before 5
th
July 2013 there
competes within the line as non bank
where they offer non compliance
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product against BNM. The people
lead for MBSB has less experience
compare to other Bank. With the step
of Making MBSB as a vehicle without
looking at cost & benefit will
ultimately put the investment into
risk. Using the Tawaruq concept with
having the case blow up in the sky
being suspended for having non
compliance back in 2013 categories as
CIMB, RHB & MBSB strength

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3
short selling is well know in the
public, MBSB has used its right a non
banking license to its advantage. CIMB
in the other way and RHB has a
difference approach of Islamic banking
but their approach is not impeccable to
the market compare to Maybank
maybe this will be the next reason for
CIMB to take over Bank Islam as their
next collection of acquisition.
CIMB
Under the leadership of current CEO they has manage to compete and proof themselves in Capital and consumer market but yet
they need improve in terms of sales oriented environment. Their biggest competitors are Maybank where its catching up in term
of numbers. Their Product should be more diversify and flexible for instance faster approval and technology oriented.
RHB
The people is always a problem but yet the leadership just landed and he is doing many changes . The people energy need to be
change so they can synergize and compete with market. Their Mortgage asset is expending but the Personal loan is growing
slowly at average rate of 2 % better than MBSB and CIMB. (CIMB recently closed its Personal loan department)
MBSB
With no more advantage of being non license bank MBSB team is facing difficulty in term of asset and liability. To comply with
BNM under FSA is not an easy job yet the Management has to proof with their track record The Sales team for Retail is
downsizings where their focus is on mortgage yet the number is not raising due to not interesting pricing. Merger seems a good
exit plan for MBSB with the environment they are facing.
Board Of
Top Management
Middle Management
Lower Management
Table of Leadership in 3 Banks
CIMB RHB
MBSB



CDMA Investment
Author: Izzy
Contact: Idzwan@cdmainvestment.com