RHB Capital is buying 80% of Indonesian bank, Bank Mestika for RM1.16bn, with an option to acquire another 9%. The deal is broadly in line with our expectations, notwithstanding the bank’s decision to finance the purchase through a RM1.3bn rights issue which could dilute EPS by 8-9%. Overall, we take a positive view of the deal as it will enable the group to tap into the underpenetrated market in Indonesia where loan growth is expected to be 15-25% and net interest margin is above 6%. As the terms of the rights issue are not finalised, we retain our earnings numbers, target price of RM7.00 (10% premium over DDM value) and OUTPERFORM call. Potential re-rating catalysts are (1) regional expansion, including this deal, (2) benefits from the ongoing transformation programme, (3) improvement in investment banking income, and (4) value-add from its strategic partner, Abu Dhabi Commercial Bank.
Sarawak Energy update – Taking the private road
Sarawak Energy’s parent, the Sarawak State Financial Secretary, is making a voluntary offer for all the 534.6m SEB shares that it does not already own, after which it will delist SEB. This development is a positive surprise. As the RM2.65/share cash offer is attractive, we advise minority shareholders to accept it. We retain our FY09-11 earnings forecasts but up our target price from RM2.06 to the VGO price of RM2.65. We think that investors have only a very small window of opportunity to buy the stock when trading resumes today given the likely share price bounce to close to the offer price. As a result, we upgrade the stock from sell to a HOLD instead of a buy. For exposure to the power sector, we advise investors to switch to Tenaga. For a play on Score, our preferred pick is now CMS.
Tenaga Nasional update – The dark hours before the dawn
Quick takes – Eastern & Oriental update – EX-uberance
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