Monday, 22 July 2013

Hwang-DBS sale bid hits a snag

For AMMB's and Affin's bidding for Hwang DBS Investment Bank, talk has surfaced that Hwang-DBS may be holding out for a higher price for its businesses. According to sources, Hwang-DBS may not be happy with the offer tabled which values the company at P/BV of only 1x to 1.18x, a far cry from two similar transactions previously which has P/BV of as high as 1.9x. 
  • It is learnt that Hwang-DBS directors convened a meeting last month to deliberate on the bids but no decision was made. This has led to talk that Hwang-DBS may want the two bidders to submit new bids. 
  • Negotiations have to be firmed up latest by Oct ad the central bank's approval, via a letter dated Apr 12, was valid for only six months. (Focus Malaysia)

We were surprised to read that the bidding price for Hwang DBS Investment Bank is only in the range of 1x to 1.18x in terms of P/BV. This is lower than the average P/BV of 1.31x for past M&As for investment banks. In fact, we think that HDIB will fetch a higher P/BV due to its size and strong exposure to retail broking. However, we expect its valuation to be lower than the 1.77x that RHB Capital paid for OSK Investment Bank and the 1.9x that Maybank paid for Kim Eng as OSK and Kim Eng are regional players while HDIB's business is mostly concentrated in Malaysia. Assuming a 10% premium over the average, HDIB could be sold at circa 1.44x P/BV. 

We see high possibilities that the shareholders of HDIB will not want to sell their stakes in HDIB at 1-1.18x P/BV. For the longer-term prospects, it would be negative if AMMB / Affin misses the opportunities to acquire Hwang DBS Investment Bank (HDIB), which will significantly scale up their investment banking (IB) business, especially in the retail broking segment. In the immediate term, the acquisition of HDIB could dilute their EPS, by about 4% for AMMB and 14% for Affin. But we are positive that both banks are practicing price disciplines in their bidding for HDIB.

Source: CIMB Daybreak - 22 July 2013

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