May 3, 2011

HLBANK - AmResearch maintains Buy on Hong Leong Bank, unch FV RM12.20

Stock Name: HLBANK
Company Name: HONG LEONG BANK BHD
Research House: AMMB

KUALA LUMPUR: AmResearch maintains its Buy rating on HONG LEONG BANK BHD [] (HLBB), with an unchanged fair value of RM12.20/share.

'This is based on unchanged P/BV of 2.3 and calendarised 2011 ROE of 15.7%,' it said on Tuesday, May 3.

EON Capital (EON Cap) announced that its board had on April 28 confirmed to Hong Leong Bank Bhd's (HLBB) to accept the offer by HLBB to buy the entire assets and liabilities of EON Cap for RM5.06bil or RM7.30/EON Cap share.

However, EON Cap unexpectedly added in one major new condition before accepting the offer, which was that EON Bank, the wholly-owned subsidiary of EON Cap, will pay a net dividend of RM311.9mil, to EON Cap.

An application for the proposed interim dividend will be submitted to Bank Negara Malaysia (BNM).

HLBB has confirmed it has no objection to EON Bank declaring and paying net dividend amounting to RM311.9mil upon receipt by EON Bank the approval from BNM.

HLBB said it will maintain the acquisition price of RM5.06bil with no deduction for payment of the proposed interim dividend.

AmResearch said EON Cap has not yet announced it will pay up the dividend to its shareholders EON Cap's announcement is vague in the sense that it did not mention what it intended to do with the net dividend of RM311.9mil.

'We are not able to get further indications from EON Cap at this point. We expect EON Cap to pay the dividend eventually to shareholders, which will be RM0.45/share.

'Despite this, we expect EON Cap to eventually pay the unexpected net dividend of RM311.9mil to EON Cap's shareholders. This is on the basis that EON Cap will likely be delisted post the merger,' it said.

AmResearch said in EON Cap's circular to shareholders dated Sept 1, 2010, EON Cap's board said that it did not intend to maintain the listing status of EON Cap and would make the necessary arrangements to request for the delisting of EON Cap.

Also, in the circular to shareholders, EON Cap had said that it intended to pay a capital distribution amount of RM1.76bil or RM2.54/share, which represent the existing share capital and share premium reserve of EON Cap, as

AmResearch said EON Cap cannot declare a special dividend from these capital accounts, but only via a capital repayment exercise in accordance with Sections 60 and 64 of the Companies Act 1965.

On top of this, EON Cap had said that it intended to pay a special dividend of RM3.3bil or RM4.76/share, which comprise the retained earnings as at 31 December 2009 as well as realised capital gain from the proposed disposal of assets and liabilities to HLBB.

'On this basis, we expect the RM311.9mil that EON Cap will receive to be declared as dividends to EON Cap's shareholders. This works out to RM0.45/EON Cap share,' AmResearch said.

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