Bank - maintain OVERWEIGHT (CIMB)

Abu Dhabi Commercial Bank’s (ADCB) proposed sale of its 25% stake in RHB Capital opens the door for an M&A with another banking group. Among the candidates identified by The Edge, i.e. Maybank, CIMB, AMMB and Alliance, we think Maybank is the best suitor. But such a deal would require a rights issue, which would dilute Maybank’s EPS despite the merger synergies. From a sector perspective, sustained M&A momentum will continue to draw interest in banking stocks. We maintain our OVERWEIGHT on Malaysian banks given the potential re-rating catalysts of (1) higher investment banking income, (2) better growth prospects for overseas operations, (3) upside potential to our dividend forecasts, (4) potential partial write-back of collective assessments, and (5) M&A newsflow. RHB Capital remains our top pick.