M&A deal in the making with Public Bank- LPI Capital suspension – RHB IB

KUALA LUMPUR: RHB Investment Bank Bhd (RHB IB) said the trading suspension requested by Public Bank Bhd and LPI Capital Bhd of their respective shares lends credence to media reports of a deal being struck.

In a research note today, RHB IB said that based on its estimation, an all-cash deal would be earnings and return of equity (ROE) accretive, and would move Public Bank’s Common Equity Tier 1 (CET-1) ratio to a more optimal level, in line with the management’s recently stated objective of “optimising capital to maximise ROE”.

“It will bring capital closer to its optimal level,” RHB IB said.

“Assuming that Public Bank issues new shares, we estimate the impact would be broadly neutral to EPS, ROE, and capital.

“We also estimate that in such a scenario, the stake of the late Tan Sri Teh Hong Piow’s estate in Public Bank could rise to 24.6 per cent from the current 23.4 per cent,” it said.

LPI Capital is predominantly involved in the general insurance business in Malaysia, Singapore, and Cambodia.

In the first half of 2024, it recorded a net profit of RM179 million, up 31 per cent year-on-year from a reversal of previous reinsurance reserves related to its fire insurance segment, translating to an annualised ROE of 16 per cent from 13 per cent a year ago.

Assuming a merger and acquisition price-to-book ratio of two times — similar to the AMMB-Kurnia deal –the investment bank estimates that LPI could be valued at RM5.3 billion, using FY2025 consensus book value per share.

RHB IB said it believes such a deal could be part of management’s plan to improve contribution and follows its earlier acquisition of RHB Securities Vietnam for 374 billion VND (RM65 million).

“It could be that the management sees better synergies by being able to offer a full suite of products and services.

“We await further details on the deal and are keen to hear the management’s views as to how the acquisition fits into the group and its strategies,” it said.

RHB IB has maintained “Buy” call for Public Bank with an unchanged target price of RM5.30. – Bernama