Friday, September 6, 2013

China Merchants Bank : Rights issue successful, removes two-year overhang (CS)

China Merchants Bank - H
Maintain NEUTRAL
Price (05 Sep 13 , HK$) 14.52
TP (prev. TP HK$) 17.62 (17.62)
Rights issue successful, removes two-year overhang

CMB has announced a 96.4% subscription to its A-share rights offering. Effectively the rights issue is now through since (1) the minimum required is 70%, (2) A-shares account for 82% of total shares, and (3) H-shares are fully underwritten.

● Priced at HK$11.68/share on HKEx and Rmb9.29/share in the A-share market, the rights issue collects Rmb34.85 bn (US$5.5 bn, 13% of market cap), adds 125 bp to core Tier 1 ratio (which was 8.00% as of 1H13), trims EPS by ~15% and ROEs by 1.8%.

● Until the global financial crisis, CMB used to earn superior ROEs and used to trade at a significant premium to big four banks. That has changed lately as ROEs+valuations have converged. We see medium-term ROEs of 18% for CMB, similar to ICBC/CCB.

● The rights issue removes the two-year overhang and is clearly a positive for CMB. In the past two years, the bank has gone headlong into small enterprise lending and been de-emphasising mortgage, diluting its retail franchise, in our view. The addition of 17% new shares leads to a 2% decline in EPS in 2014E.

A-share rights through, H-share on 26 September
The 96.39% subscription ensures that the rights issue is successful given A-shares account for 82% of total shares and H-shares are fully underwritten. The subscription is impressive since the new issuance was priced at 0.94x the Jun-13 book value (0.87x P/B FY13E).

The H-share subscription rate will be announced on 26 September.

CMB needed fresh equity…
CMB's common equity Tier 1 ratio had fallen to 8.00%, second lowest among the H-share banks. Rights issue would lift it by 1.25%.
…although it trims EPS by ~15% and ROEs by ~1.8%
The rights issue adds 3.6 bn shares = 16.7% to the current share count of 21.6 bn. It pares 2014E EPS by around 15% and ROEs by around 1.8%. 2015E ROE works out to 18.0% in our estimate.

Source/Extract/Excerpts/来源/转贴/摘录: Credit Suisse
Publish date: 06/09/13

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