Stock Name: MAYBANK
Company Name: MALAYAN BANKING BHD
Research House: RHB
Malayan Banking Bhd
(Jan 7, RM9)
Maintain outperform at RM9.01 with target price of RM10.20: Maybank announced on Jan 6 the proposed acquisition of a 44.6% stake in Kim Eng Holdings for S$798 million (RM1.9 billion or S$3.10 per share) in cash. The vendors are Kim Eng chairman and CEO Ronald Ooi (15.44% stake in Kim Eng) and Yuanta Securities (29.19%). Upon completion of the proposed acquisition, Maybank intends to make a mandatory general offer (MGO) to acquire the remaining Kim Eng shares for S$3.10 per share in cash, with the intention of privatising the company. All-in, Maybank would need to fork out around S$1.79 billion (RM4.26 billion) for the full stake in Kim Eng.
Kim Eng's key attraction to Maybank is its stockbroking and investment banking presence in Singapore, Thailand, Indonesia and the Philippines (top five broker in these countries), as well as a presence in Hong Kong, Vietnam, New York, London and India. Maybank had previously identified Singapore and Indonesia as key markets it was targeting to move into for the investment banking unit, which is currently confined to Malaysia, and had not ruled out the possibility of acquisitions. Thus, the acquisition would be in line with Maybank's regional aspirations.
The acquisition/offer price of S$3.10 per share is at a 14.8% premium to Kim Eng's last traded price and translates to a price-to-book value (P/BV) multiple of 1.9 times, based on Sept 30, 2010, BV per share (26.7 times annualised 9MFY10 EPS). This may not appear cheap, relative to the P/BV multiple of 1.4 times that was transacted for the CIMB-GK Goh deal. However, the premium could be justified on grounds that it accelerates the group's investment banking build-out in Asean as well as Kim Eng's wider presence and strong position in the Asean region. We also do note that the privatisations of CIMB and AIGB were carried out at higher P/BV multiples of 2.1 and 2.6 times, but these transactions may be less comparable. On the whole, we are neutral as to the transaction valuations.
The acquisition of Kim Eng is not expected to have a significant impact on our FY12 net profit and return on equity projections (about +0.6% to profit after tax and minority interests). We also estimate the acquisition could lower the group's FY11 core capital ratio to 10.9%, from 11.9% projected, roughly in line with the 123 basis points decline in risk-weighted capital ratio management guided (based on Sept 30, 2010, balance sheet).
The proposed acquisition is subject to approvals from Bank Negara Malaysia and the Monetary Authority of Singapore, among others, and is expected to be completed by April, while the MGO is expected to be completed by May.
Our earnings forecasts are unchanged. Our fair value of RM10.20 (benchmark 16 times CY11 EPS) and 'outperform' call on the stock are unchanged. ' RHB Research, Jan 7
This article appeared in The Edge Financial Daily, January 10, 2011.
Company Name: MALAYAN BANKING BHD
Research House: RHB
Malayan Banking Bhd
(Jan 7, RM9)
Maintain outperform at RM9.01 with target price of RM10.20: Maybank announced on Jan 6 the proposed acquisition of a 44.6% stake in Kim Eng Holdings for S$798 million (RM1.9 billion or S$3.10 per share) in cash. The vendors are Kim Eng chairman and CEO Ronald Ooi (15.44% stake in Kim Eng) and Yuanta Securities (29.19%). Upon completion of the proposed acquisition, Maybank intends to make a mandatory general offer (MGO) to acquire the remaining Kim Eng shares for S$3.10 per share in cash, with the intention of privatising the company. All-in, Maybank would need to fork out around S$1.79 billion (RM4.26 billion) for the full stake in Kim Eng.
Kim Eng's key attraction to Maybank is its stockbroking and investment banking presence in Singapore, Thailand, Indonesia and the Philippines (top five broker in these countries), as well as a presence in Hong Kong, Vietnam, New York, London and India. Maybank had previously identified Singapore and Indonesia as key markets it was targeting to move into for the investment banking unit, which is currently confined to Malaysia, and had not ruled out the possibility of acquisitions. Thus, the acquisition would be in line with Maybank's regional aspirations.
The acquisition/offer price of S$3.10 per share is at a 14.8% premium to Kim Eng's last traded price and translates to a price-to-book value (P/BV) multiple of 1.9 times, based on Sept 30, 2010, BV per share (26.7 times annualised 9MFY10 EPS). This may not appear cheap, relative to the P/BV multiple of 1.4 times that was transacted for the CIMB-GK Goh deal. However, the premium could be justified on grounds that it accelerates the group's investment banking build-out in Asean as well as Kim Eng's wider presence and strong position in the Asean region. We also do note that the privatisations of CIMB and AIGB were carried out at higher P/BV multiples of 2.1 and 2.6 times, but these transactions may be less comparable. On the whole, we are neutral as to the transaction valuations.
The acquisition of Kim Eng is not expected to have a significant impact on our FY12 net profit and return on equity projections (about +0.6% to profit after tax and minority interests). We also estimate the acquisition could lower the group's FY11 core capital ratio to 10.9%, from 11.9% projected, roughly in line with the 123 basis points decline in risk-weighted capital ratio management guided (based on Sept 30, 2010, balance sheet).
The proposed acquisition is subject to approvals from Bank Negara Malaysia and the Monetary Authority of Singapore, among others, and is expected to be completed by April, while the MGO is expected to be completed by May.
Our earnings forecasts are unchanged. Our fair value of RM10.20 (benchmark 16 times CY11 EPS) and 'outperform' call on the stock are unchanged. ' RHB Research, Jan 7
This article appeared in The Edge Financial Daily, January 10, 2011.
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