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PP 7767/09/2010(025354)

21 May 2010

Malaysia Corporate Highlights


RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

New s Upda te
21 May 2010
MARKET DATELINE

EON Capital Share Price


Fair Value
:
:
RM6.92
RM8.07
Board Decides To Proceed With EGM Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (EONCAP; Code: 5266) Bloomberg: EON MK


Net EPS Net Net
FYE PBT Profit EPS Gwth PER BVPS P/Book C.EPS* DPS Div Yld ROE
Dec (RMm) (RMm) (sen) (%) (x) (RM/s) (x) (sen) (sen) (%) (%)
2009 421.9 341.1 49.2 155.0 14.1 5.13 1.3 - 10.0 1.4 10.1
2010f 497.4 373.1 53.8 9.4 12.9 5.59 1.2 56.2 10.0 1.4 10.0
2011f 563.2 422.4 60.9 13.2 11.4 6.12 1.1 62.8 10.0 1.4 10.4
2012f 625.0 468.8 67.6 11.0 10.2 6.72 1.0 69.4 10.0 1.4 10.5
Main Board Listing / Non-Trustee Stock / Non-Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

Issued Capital (m shares) 693.2


Market Cap (RMm) 4,887.1
♦ Board decides to proceed with EGM ... EON Cap announced this
Daily Trading Vol (m shs) 0.5
morning that the Board has decided to proceed and table HL Bank’s 52wk Price Range (RM) 3.68 - 7.19
proposal to acquire the entire assets and liabilities of EON Cap for Major Shareholders: (%)
RM5.06bn (Offer or Proposed Disposal) for shareholders’ approval. This is Primus Pacific Partners 20.2
notwithstanding the independent financial adviser’s (IFA) view that the R.H. Development Corp 16.3
Offer by HL Bank was “not fair from a financial perspective” (copy of the EPF 13.1
IFA’s opinion letter will be included in the circular to shareholders). Kualapura 11.1
Khazanah 10.0
♦ … which was expected. The Board’s decision does not come as a
FYE Dec FY10 FY11 FY12
surprise to us as we had previously mentioned that the Board would still
EPS chg (%) - - -
likely proceed with the EGM, regardless of the IFA’s opinion. The IFA’s
Var to Cons (%) (4.2) (2.9) (2.5)
opinion, however, would help to reaffirm our view that HL Bank’s Offer for
EON Cap is too low and does not take into account improving fundamentals PE Band Chart
as well as the Group’s hidden value such as unabsorbed tax losses at MIMB PER = 25x
PER = 20x
and Section 108 tax credits (available to frank dividends) at EON Bank. In PER = 15x
addition, after years of low single-digit expansion, we expect loan growth PER = 10x

to accelerate post transformation, on the back of a doubling in loan


approvals and double-digit growth in undrawn commitments.

♦ Proposed distribution of cash proceeds from HL Bank’s offer to EON


Cap’s shareholders. EON Cap also announced a proposal to distribute the
cash proceeds arising from the Proposed Disposal to its shareholders Relative Performance To FBM KLCI
(Proposed Distribution). This will comprise a special dividend, which is
estimated to be about RM3.3bn, followed by a capital repayment exercise
for the balance of the proceeds. The Proposed Distribution is conditional EON Capital
upon the Proposed Disposal and subject to approvals from, among others,
EON Cap’s shareholders. Assuming the Proposed Disposal goes through
and the relevant approvals are obtained, the special dividend is expected
to be paid within one month from the completion of the Proposed Disposal. FBM KLCI

The capital repayment exercise is expected to be completed by end-2010.

♦ Investment case. While the potential appreciation in EON Cap’s share


price would likely be capped at HL Bank’s offer price (RM7.30/share) in the
near term, nevertheless, this does not alter our view that EON Cap’s
fundamentals are improving with potential positive impact from an internal
restructuring. There is also the possibility of shareholders rejecting the
offer in an EGM, thereby “forcing” HL Bank to increase its offer price if the
latter views EON Cap as an integral part of its long-term plan. Maintain
David Chong, CFA
Outperform and indicative fair value of RM8.07 (15x FY10 EPS).
(603) 9280 2186
Please read important disclosures at the end of this report. david.chong@rhb.com.my

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Table 2. Earnings Forecasts Table 3. Ratio Analysis & Forecast Assumptions


FYE Dec (RMm) FY09a FY10F FY11F FY12F FYE Dec FY10F FY11F FY12F

Net Interest Income Asset Quality (%)


(+ Islamic Banking) 1,139.5 1,258.6 1,334.9 1,409.8 Gross NPL 3.26 2.76 2.26
Non-interest Income 283.7 318.8 343.7 370.6 Net NPL 1.97 1.64 1.34
Operating Income 1,423.3 1,577.4 1,678.6 1,780.4 SP / NPL 49.00 50.50 52.00
GP / Net Loans 1.49 1.49 1.49
Less: Overhead Loan Loss Coverage 85.57 94.54 106.64
Expenses -837.8 -904.9 -950.1 -997.6 Core Capital Ratio 11.13 11.23 11.43
Pre-provision RWCAR 14.26 14.25 14.36
Profit 585.4 672.5 728.5 782.8
Margins (%)
Less: Loan Loss Yields On Earnings Assets 4.40 4.35 4.30
Provisions -163.5 -175.1 -165.3 -157.8 Avg. Cost Of Funds 2.40 2.41 2.42
Operating Profit 421.9 497.4 563.2 625.0 Interest Spread 2.00 1.94 1.88
Un-adj NIM (ex-Islamic Inc) 2.17 2.11 2.05
Adj to goodwill 0.0 0.0 0.0 0.0 Adjusted NIM (+Islamic Inc) 2.69 2.63 2.59
Pretax Profit 421.9 497.4 563.2 625.0
Profitability (%)
Less: Tax -80.8 -124.4 -140.8 -156.3 ROE 10.05 10.40 10.53
Effective Tax Rate 19.2 25.0 25.0 25.0 ROA 0.77 0.81 0.83
(%) Cost / Income Ratio 57.37 56.60 56.03
Profit After Tax 341.1 373.1 422.4 468.8 Expenses / Avg. Assets 1.87 1.81 1.77
Provisions / Avg. Net Loans 0.52 0.45 0.39
Minorities 0.0 0.0 0.0 0.0
Net Profit 341.1 373.1 422.4 468.8 Liquidity (%)
Source: Company data, RHBRI estimates Loan Deposit Ratio 93.06 93.25 93.46
Net / Gross Loan Growth 10.23 9.20 8.22
Deposit Growth 10.00 9.00 8.00
Source: RHBRI estimates

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or
be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
may from time to time have an interest in the securities mentioned by this report.

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of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
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The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

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Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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