AmResearch positive on RHB Bank, AIA tie-up

AMRESEARCH views RHB Bank’s bancassurance tie-up with American International Assurance Bhd (AIA) positively although there are no details on it as yet.

It said the tie-up would enable RHB Bank to add a new source of non-interest income and leverage on AIA’s expertise and experience. It would also mean that RHB Bank would not have to tie up additional capital for the generally capital intensive life insurance business. “This strategic alliance with AIA is the second that RHB Bank has unveiled in recent times, the first one being the set-up of the first banking kiosk in Tesco Hypermarket and the launch of Tesco co-brand debit and credit cards. This forms part of management’s strategy to enhance the bank’s distribution capabilities through partnership,” AmResearch noted.

On Monday, RHB Capital Bhd — the holding company of RHB Bank — announced that the bank had executed a term sheet with AIA, which constitutes the preliminary statement of intentions of AIA and RHB Bank to establish a 10-year mutually exclusive bancassurance relationship in Malaysia.

Under the proposed terms of the bancassurance alliance, RHB Bank is to market, promote and sell conventional life insurance products developed by AIA via the bank’s network of offices, branches and other channels. AIA would absorb all the cost and expenses necessary for the successful implementation of the plan.

In addition, AIA shall commit upfront RM50 million in consideration for RHB Bank’s commitment to the 10-year exclusive bancassurance relationship.

“Both parties have also agreed to review the offering of takaful products. In the event AIA notifies RHB Bank that it is unable to add takaful products to the bancassurance product range, AIA will pay a sum of RM50 million to RHB Bank to enable RHB Bank to source for takaful products from another insurer,” said AmResearch.

“This RHB Bank-AIA alliance is similar to the Public Bank-ING 10-year partnership that was cemented in November 2007. But the goodwill payment that Public Bank received from ING was a more substantial RM200 million with another €12.4 million (RM58.1 million) to be paid over the duration of the agreement upon fulfilment of the conditions set out in their agreement.

“The bigger goodwill payment under the Public Bank-ING tie-up can be attributed to the regional coverage that Public Bank would provide to ING,” added the local research house.

At RM3.76, AmResearch noted that RHB Capital is trading at one time its FY09F’s price-to-book value (P/BV) and 7.7 times FY09F’s earnings per share (EPS).

“We have a fair value of RM4.10/share, which values the stock at 1.1 times P/BV and 10.6 times PE (price earnings),” it said, adding that it is maintaining its hold recommendation on the stock.

RHB Capital slipped eight sen to close at RM3.68 yesterday.

The Edge