Speculation is rife that Public Bank may acquire LPI Capital.
PETALING JAYA: Analysts are keeping their “buy” calls on both Public Bank Bhd
and LPI Capital Bhd, pending an announcement today.
Speculation is rife that Public Bank may acquire LPI Capital, which owns Lonpac Insurance Bhd, a general insurance provider in Malaysia, Singapore and Cambodia.
In the first half of this year, LPI recorded a net profit of RM179mil, up 31% from the year before.
Both Public Bank and LPI have requested a suspension in the trading of their stocks. Notably, both financial institutions have common shareholders.
MIDF Research said it viewed this possibility as both “surprising and interesting” if it turns out to be true.
“Our surprise is based on our observation of industry trends, whereby banks would normally have exposure in the insurance industry via bancassurance arrangements, while some banks have even exited the insurance business recently,” MIDF Research told clients in a report.
It said all in all, it was “neutral” with a slight positive bias should this speculated transaction turn out to be true.
“We maintain our ‘buy’ call on LPI with a target price of RM14.52. We like Public Bank for its robust asset quality and somewhat attractive dividends.”
RHB Research said by its estimates, an all-cash deal would be earnings and return on equity (ROE)-accretive and would move Public Bank’s Common Equity Tier-1 ratio to a more optimal level, in line with management’s recently stated objective of “optimising capital to maximise ROE”.
A share swap would be largely neutral, it added in a report on Public Bank.
“We await further details on the deal and are keen to hear management’s view as to how the acquisition fits into the group and its strategies. Our target price (of RM5.30) includes a 2% environmental, social and governance premium applied to the intrinsic value.”
RHB Research said apart from the above financial effects, it believes such a deal follows on the back of its earlier acquisition of RHB Securities Vietnam for 374 billion dong (RM65mil).
While the move into manufacturing could raise questions (versus focusing on distribution), it could be that management sees better synergies by being able to offer a full suite of products and services.
MIDF Research, meanwhile, said assuming the speculation is true with a 100% acquisition (LPI’s market capitalisation as of Oct 8, 2024 was RM5.2bil) and completed in financial year 2025, it does see it to be value accretive for Public Bank but this will not be significant.
“Again, speculating if this development is true, we do not foresee any difficulties in the supposed transaction. For context, LPI’s market capitalisation as of Oct 8 was RM5.2bil, while Public Bank’s was RM88.7bil. Meanwhile, Public Bank has a cash reserve of RM12.4bil.
“We believe that it could unlock some synergy such as leveraging on both party’s customer networks and bundling of products,” MIDF Research said.
The research outfit said it was making no changes to its earnings estimates for now, pending the announcement.
In an invite sent out to the media, Public Bank said managing director and chief executive officer Tan Sri Tay Ah Lek, along with a few key stakeholders, will share important updates and information related to the major announcement at the press conference.
