Affin's proposed acquisition of Hwang-DBS units likely to raise group's market share

by **Cals** Fri 06 Sep 2013, 08:51

Published: Friday September 6, 2013 MYT 12:00:00 AM
Updated: Friday September 6, 2013 MYT 7:48:44 AM
Affin's proposed acquisition of Hwang-DBS units likely to raise group's market share

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Affin on Wednesday had entered into an exclusive agreement for the proposed acquisition of Hwang-DBS’ investment banking, futures and asset managemen t businesses.

PETALING JAYA: Affin Holdings Bhd’s proposed acquisition of Hwang-DBS (M) Bhd’s business units should strengthen the former’s foothold in the investment banking sector, especially in retail broking.
According to TA Research, Affin’s market share in retail broking would potentially increase from the present 3.7% of total trading value to around 11.2% post-merger, pushing its market position from 10th to second.
It said Affin would overtake RHB Investment Bank Bhd and Maybank Investment Bank Bhd that respectively command 9.2% and 8.3% of market share.
“We also estimate the pre-tax profit of Affin’s investment-banking business will double and expect contribution mix between both the group’s commercial and investment-banking business segments to change,” TA Research said in its report.
It expected investment-banking contribution to increase to 21% of Affin’s group profit post-merger from only 12% presently, while contribution from commercial banking business would reduce to 74% from 83% presently.
To recap, Affin on Wednesday announced it had entered into an exclusive agreement for the proposed acquisition of Hwang-DBS’ investment banking, futures and asset-management businesses.
The proposed deal included a 100% stake in HwangDBS Investment Bank Bhd andHDM Futures Sdn Bhd, a 70% stake in Hwang Investment Management Bhd and 49% interest in Asian Islamic Investment Management Sdn Bhd.
There was no indication of offer price at this juncture, but analysts bet for the deal to be priced between RM770mil and RM1.3bil based on a price-to-book value of 1.1 and 1.6 times.
TA Research said it believed Affin would undertake a rights issue to fund the acquisition.
CIMB Research, meanwhile, argued that while Affin’s acquisition of Hwang-DBS’ business units could be positive for the former in the longer term due to potential cost synergies and expansion of its investment-banking business, the deal was expected to be negative for Affin in the near term.
CIMB Research attributed that to overlaps of the investment-banking businesses of both banks and that the deal could also dilute Affin’s earnings.
“We retain our ‘underperform’ rating (on Affin), premised on the expected upturn in credit costs, slowdown in loan growth and margin contractions,” it explained in a note.
“Also, we do not expect the acquisition to yield positive results in the near term.”
Affin’s shares yesterday closed three sen higher at RM4.19 on volume of 438,800 units.