Stock Name: EONCAP
Company Name: EON CAPITAL BHD
Research House: OSK
KUALA LUMPUR: OSK Research is maintaining its NEUTRAL recommendation on EON CAPITAL BHD [] (EONCap) but with an unchanged RM7.30 target price to reflect the current offer price from Hong Leong Bank. "We believe that the offer is fair given the lack of other credible bidders involving a 100% stake sale via an asset and liability acquisition," it said on Monday, April 19. OSK Research said the group is still in the early stages of its strategic transformation and sustaining a higher valuation of RM7.00 to RM8.00 would imply an ROE of 12% to 14% from our current forecast 10.6% FY10 ROE, which equates to a loans growth exceeding 14%, nearly double the industry's current 7.8%. "This would certainly require a longer gestation period, given the group's lack of scalability, funding, relatively saturated domestic banking landscape and increased competition from foreign banks," it said. Meanwhile, Primus Pacific Partners Ltd had issued a two-page statement affirming that it remains committed as a long-term shareholder in EONCap and has no intention of disposing of its 20.2% stake. OSK Research said Primus's latest statement may indicate that there could have been some form of disagreement with regards to the pricing of the proposed equity option to be offered to shareholders of EONCap. Furthermore, as the offer price for EONCap at 1.42x PBV may be deemed to be at the lower end of the historical acquisition valuation price range, HLBank may be concerned over a potentially high take-up for the equity settlement option among minority shareholders giving rise to ROE dilution. "In our sensitivity analysis, we see a potential dilution in HLBank's ROEs from the current 15.5% to 13.0%, assuming that 50% of EONCap's shareholders were to opt for the equity option," it said.
Company Name: EON CAPITAL BHD
Research House: OSK
KUALA LUMPUR: OSK Research is maintaining its NEUTRAL recommendation on EON CAPITAL BHD [] (EONCap) but with an unchanged RM7.30 target price to reflect the current offer price from Hong Leong Bank. "We believe that the offer is fair given the lack of other credible bidders involving a 100% stake sale via an asset and liability acquisition," it said on Monday, April 19. OSK Research said the group is still in the early stages of its strategic transformation and sustaining a higher valuation of RM7.00 to RM8.00 would imply an ROE of 12% to 14% from our current forecast 10.6% FY10 ROE, which equates to a loans growth exceeding 14%, nearly double the industry's current 7.8%. "This would certainly require a longer gestation period, given the group's lack of scalability, funding, relatively saturated domestic banking landscape and increased competition from foreign banks," it said. Meanwhile, Primus Pacific Partners Ltd had issued a two-page statement affirming that it remains committed as a long-term shareholder in EONCap and has no intention of disposing of its 20.2% stake. OSK Research said Primus's latest statement may indicate that there could have been some form of disagreement with regards to the pricing of the proposed equity option to be offered to shareholders of EONCap. Furthermore, as the offer price for EONCap at 1.42x PBV may be deemed to be at the lower end of the historical acquisition valuation price range, HLBank may be concerned over a potentially high take-up for the equity settlement option among minority shareholders giving rise to ROE dilution. "In our sensitivity analysis, we see a potential dilution in HLBank's ROEs from the current 15.5% to 13.0%, assuming that 50% of EONCap's shareholders were to opt for the equity option," it said.
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