Analysts on the lookout over RHB proposed disposal


RHB Bank Bhd’s potential sale of a majority stake in RHB Insurance Bhd to Tokio Marine Asia Pte Ltd is driven by cost efficiency factor and has minimal impact on its future earnings.

While the development of the matter appears positive, analysts, however, await details of the deal.

In an exchange filing on Wednesday, the country’s fourth-largest lender by assets announced it has received Bank Negara Malaysia’s nod to commence negotiations with Tokio Marine.

The central bank’s approval is valid for six months starting from July 29, 2019. This is in relation to the proposed disposal of up to 94.7% equity interest in RHB Insurance.

MIDF Research, in a note yesterday, stated the disposal could be due to the desire to exit non-core business and said it was a logical move as it allowed RHB to better focus on its core banking business.

The research house also said RHB Insurance is not a significant driver to group earnings.

“Based on RHB Insurance’s financial year 2018 (FY18) audited accounts, it recorded a profit after tax (PAT) of RM62.8 million which was 39.8% lower year-on-year (YoY). The decline was due to higher net claims (+34.9% YoY to RM302.3 million) and lower on other income (-17.7% YoY to RM84.4 million).

“Compared to the group’s FY18 PAT of RM2.31 billion, RHB Insurance contributed only 3%. RHB Insurance had net assets of RM573.7 million as at the end of FY18,” the research firm said.

MIDF expects the group to book in gains from the disposal in FY20.

On valuation and recommendation, MIDF said the execution of its FIT22 strategy will be a key driver to its earnings and is maintaining its FY19 and FY20 forecast pending further clarity on the proposal.

MIDF maintains its ‘Buy’ call with unchanged target price (TP) of RM6.35, pegged to RHB’s FY20 book value equity per share to 0.97 time its fiveyear average price-to-book value,” the research firm said.

Kenanga Research said the divestment of the insurance arm is purely a cost-cutting measure as the insurance arm accounts for up to 4% of its operating expense, but contributes less than 3% to the top line and bottom line.

“With RHB rebalancing its exposure to corporate loans, it is likely that the group sees its insurance arm as less earnings-accretive in the long run,” the research house said.

Assuming a sale is between two times to three times book value, Kenanga estimates RHB to gain between RM543 million and RM1.1 billion, which the bank could either use for reinvestment/working capital or potentially for a special dividend.

“At a conservative gain of RM543 million, we estimated a potential payout of about 48% or dividend per share (DPS) of 36 sen (from current payout of 36% and DPS of 21 sen), translating to a dividend yield of 6.5% comparable to Malayan Banking Bhd,” the research firm said.

Kenanga maintains its ‘Outperform’ call with a TP of RM6.05 based on a target 0.92 time price by volume in FY20E to reflect potential risk from uncertainties ahead.

“Valuations are undemanding; the recent depreciation of its share price has resulted in a decent dividend yield of 4% and coupled with a potential return of -14%,” the research house said.