Affin beats AMMB to acquire Hwang-DBS

by **Cals** Fri 06 Sep 2013, 11:29

Affin beats AMMB to acquire Hwang-DBS
Business & Markets 2013
Written by Alliance IB Research
Friday, 06 September 2013 10:52

Banking sector
Maintain neutral: In an announcement to Bursa Malaysia, AFFIN HOLDINGS BHD [] said the group has entered into an exclusivity agreement with Hwang-DBS (Malaysia) Bhd to acquire 100% interest in HwangDBS Investment Bank Bhd and HDM Futures Sdn Bhd, 70% interest in Hwang Investment Management Bhd and 49% interest in Asian Islamic Investment Management Sdn Bhd.

Under the agreement, both parties will proceed to make their respective applications to Bank Negara Malaysia.

There were no announcements on the pricing and funding of the proposed transaction.

Both parties mentioned that further announcements will be made in due course.

The exclusivity agreement signed by Affin implies that AMMB HOLDINGS BHD [] (AMMB) is no longer in the race to acquire Hwang DBS’ businesses.

Although we believe Affin would benefit more from the proposed acquisitions given its smaller asset base than AMMB, we believe pricing issues remain the main factor whether this potential acquisition is earnings and value accretive to Affin’s shareholders in the immediate term.

Given that the details of this potential acquisition remain scant at this point, we make no change to our earnings estimates for Affin.

We maintain our “buy” recommendation and target price of RM4.78 for Affin. Our target price implies a one times 2014 financial year price-to-book and 10.1% return on equity based on our Gordon Growth valuation model. A 5% discount on our full valuation is maintained given uncertainties arising from its proposed acquisition of the Hwang-DBS assets.

On the other hand, the failure to acquire Hwang-DBS will not change our “neutral” recommendation and target price of RM7.89 for AMMB, since we have yet to factor in any impact of the potential acquisition of Hwang-DBS’ businesses into our earnings and valuation models of AMMB.

We have no coverage on Hwang-DBS. Nonetheless, investors 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 sale proceeds may not be settled entirely in cash; (ii) the transaction only involves the sale of Hwang-DBS’ selected assets instead of the equity shares of Hwang-DBS via mandatory general offer; and (iii) there is uncertainty whether Hwang-DBS will distribute sale proceeds, in part or in full, to its shareholders. — Alliance IB Research, Sept 5

[You must be registered and logged in to see this image.]

This article first appeared in The Edge Financial Daily, on September 06, 2013.