HLIB Research Summary - 10 Oct 2014

Banking (NEUTRAL  çè)

Mega Merger – Still Prefer RHB Cap

• CIMB, MBSB and RHB Cap announced merger structure and valuations, completion expected in mid-2015.
• CIMB and MBSB delist post capital distribution.
• CIMB valued at RM7.267 (1.7x P/B 1HFY13) and RHB Cap at RM10.028 (1.44x), both in line but MBSB at RM2.82 (1.9x) surprised on upside.
• Long-term positive but short-term pain (ROE dilution and integration cost).  Execution and overlaps key risks.
• MBSB winner, privatize at RM2.82 vs. RM2.37, +19%.
• Neutral to CIMB, valued at near current price.
• RHB Cap positvie, new valuation yardstick vs. current undervaluation.  At RM10.028, FY15 P/E and P/B at 11x and 1.1x although ROE will drop to high single-digit.
• Maintain BUY on RHB Cap with unchanged RM10.00 TP and HOLD on CIMB with unchanged RM7.22 TP.
• OSK still good proxy but price appreciation reduced SOP (after 10% discount) of RM2.63 with market price to 15%.

Sime Darby (HOLD çè)

A surprise offer for NBPOL

• Sime surprised the market by announcing its intention to make a general offer for all the shares in NBPOL at £7.15/share cash.
• The price tag values NBPOL at 2014-2015 P/E of 16.4-20.5x (based on consensus), current P/B of 2.04x, EV/ha of RM80,356 (planted oil palm estates). We believe the high price tag is justified given: (1) the scarcity of sizeable brownfield plantation land bank; (2) the rare opportunity to acquire quality brownfield asset (which has strong reputation and track record, and full RSPO certification); (3) it is a good platform for Sime to expand into plantation business in PNG.
• Sime would not have issue funding the acquisition, and the acquisition will only raise Sime’s net gearing from 0.22x to 0.44x, based on our estimates. Earnings wise, we estimate that the acquisition will add ~2.5% to Sime’s FY06/15 earnings.
• Maintain earnings, SOP-derived TP of RM9.75, and Hold recommendation.

Traders Brief

Jittery mood returns amid overnight Wall St slump and the tabling of Budget 2015 today

• Ahead of the Budget 2015 release today and the return of jittery mood in Wall St and overseas markets due to concern of global economic growth, KLCI is expected to experience some wild swings ahead, tracking external markets.
• Immediate rebound targets are 1833 (50% FR), 1838 (10-d SMA) and 1852 (200-d SMA). Only a strong breakout above 200-d SMA will lift the market from current downward consolidation. Conversely, a breakdown below 1818 will likely to spur further downside towards 1800 psychological support.

Trading Idea - Brent Crude Oil

Brent Crude Oil – Technical rebound on the card!

• Positive Divergence between price and Slow Stochastics suggests potential technical rebound. Moreover, “Spinning Top” candlestick at bottom on weekly chart indicates sign of reversal of recent correction. Thus, Crude Oil is expected to rebound in near term and subsequently resume its uptrend if the downtrend (USD97) is taken out. Critical resistances are located at USD97, USD102 and USD105 while supports at USD88.42, USD82.68 and USD76.75.