Merging local and foreign shares positive for PBB

by **Cals** Mon 06 Jan 2014, 14:49

Business & Markets 2013

Written by CIMB Research

Monday, 06 January 2014 10:51

Public Bank Bhd
(Jan 3, RM18.90)
Maintain hold at RM19.40 with a target price of RM19.40: PBB started the year by proposing to merge its “local” and “foreign” shares, a move that was not unexpected.

This could be slightly positive for PBB as the move will lead to the elimination of administrative costs for maintaining two classes of shares. We retain our dividend discount model-based target price (cost of equity of 10.3; long-term growth of 4%).

Notwithstanding its above-industry loan growth and strong fundamentals, its pricey financial year 2014 ending Dec 31 (FY14) price-earnings ratio (PER) of 14.5 times has prompted us to maintain our “hold” call on the stock. We prefer RHB Capital Bhd.

PBB is proposing the merger of PBB “local” (PBB-L) and “foreign” (PBB-F) shares traded on Bursa Malaysia, following which the entire PBB share base will be quoted under a single stock code of 1295. The reference opening price of the unified PBB shares will be the last closing price of PBB-L on the market immediately prior to the effective date of the proposed merger.

The proposed merger of PBB-L and PBB-F will be undertaken without any form of compensation to shareholders, whether locals or foreigners. The exercise is expected to be completed by the second quarter of 2014. This does not come as a surprise to us, although it was not guided by management.

In fact, this move is long overdue as the purpose of maintaining two types of shares is to ensure that the foreign shareholding (by voting rights) in PBB is limited to a maximum of 30% but this can now be achieved with the electronic trading system.

The exercise will be slightly positive for PBB as it will avoid confusion for some investors, especially foreigners, and eliminate the related administrative costs for maintaining two classes of shares.

Despite PBB’s healthy FY14 earnings growth and above-industry loan momentum, we are not advising investors to accumulate the stock given its pricey FY14 PER of 14.5 times. The merger of its local and foreign shares will have minimal impact on the stock. — CIMB Research, Jan 2

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This article first appeared in The Edge Financial Daily, on January 06, 2014.