Hwang-DBS bids to be submitted this week

Hwang-DBS bids to be submitted this week
Business & Markets 2013
Written by Alliance Research
Tuesday, 11 June 2013 10:32


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Banking sector
Maintain overweight: According to a report in The Edge Financial Daily, AMMB HOLDINGS BHD [] and AFFIN HOLDINGS BHD [] are expected to submit the final binding bids this week to acquire the financial services businesses of HWANG-DBS (M) BHD [].

A source was quoted as saying that the assets targeted for acquisition are likely to be Hwang-DBS’ asset management and investment banking businesses.

It is believed that Affin has submitted the highest preliminary non-binding bid that touched the RM1.6 billion range, which could value the entire Hwang-DBS group at about 1.6 times price-to-book value (P/BV) based on the latest book value of RM970.4 million as at Jan 31.

The news does not come as a surprise to us. To recap, Hwang-DBS, AMMB and Affin jointly announced in mid-April that Hwang-DBS has obtained permission from Bank Negara Malaysia (BNM) to commence preliminary negotiations with AMMB and Affin for the potential disposal of its equity interest in Hwang DBS Investment Bank, as well as its other financial services businesses.

The market had speculated back then that the acquisition price would range from 1.2 times to 1.6 times price-to-book (P/B). As such, if the RM1.6 billion bid by Affin turns out to be true, it would come at the higher end of the valuation spectrum of 1.6 times P/B.

Although we acknowledge that the successful acquirer could leverage on this opportunity to expand its equity business, we believe that the issue of pricing remains the key determinant whether this potential acquisition is earnings and value accretive to shareholders of AMMB, and more so for Affin, given that the RM1.6 billion bid value could represent 24.6% of the latter’s market capitalisation.

For Hwang-DBS, Affin’s speculated bidding value of RM1.6 billion could potentially imply an acquisition price tag as high as RM6.20 per share. This provides a 42.5% potential upside for Hwang-DBS based on its latest closing price of RM4.35. We have no coverage on Hwang-DBS.

Nonetheless, investors who are looking to capitalise on this merger and acquisition theme by investing in Hwang-DBS need to be aware that there are still considerable uncertainties in this transaction, such as: (i) the proceeds may not be settled entirely in cash; (ii) the transaction may only involve the acquisitions of Hwang-DBS’selected assets instead of its equity shares via a mandatory general offer; and (iii) there may be a considerable time lag from the disposal of

Hwang-DBS’ selected assets to the distribution of cash proceeds to shareholders, should the management decide to do so.
We are maintaining our recommendations for AMMB (“buy”, target price [TP]: RM8.07) and Affin (“buy”, TP: RM4.78) for now until more details are revealed. — Alliance Research, June 10


This article first appeared in The Edge Financial Daily, on June 11, 2013.