PETALING JAYA: LPI Capital Bhd
’s disposal of its entire 1.13% equity interest in Public Bank Bhd (PBB) is set to provide a handsome payout to its shareholders, analysts say.
Kenanga Research said the move was commendable as it theorised that the proceeds from the eventual disposal could see a payout of 80% from the total proceeds as special dividends, in line with LPI’s historical dividend payout.
“The announcement illustrated a proposed special dividend proportion of 70%, with RM4.55mil being allocated for expenses incurred from the proposal and remaining 29% to be set aside for potential investments,” the research house said.
The research house said although short of its expectations, the proposal of a 70% payout amounted to RM691mil in special dividends or RM1.756 per share – translating to a stellar yield of 13.4%.
It said LPI Capital had shown an eagerness to utilise the remaining 29% of proceeds to increase its portfolio of equity, debt and other investments.
“We are not surprised by this as both LPI and PBB expressed strong intent to bolster collaborative efforts and cross-selling of insurance products, which on its own could translate to cost savings and higher operating efficiency. This would therefore require minimal capital injection,” the research house said.
To recap, LPI Capital filed a statement with Bursa Malaysia last week stating it wished to dispose of its stake in PBB in line with the Companies Act.
The transaction is necessary under regulatory requirements in Section 22(5)(b) of the Companies Act 2016, as LPI became a subsidiary of PBB following the latter’s acquisition of a 44.15% stake last December.
By law, insurance provider LPI must divest its holdings in its parent company within 12 months.
LPI Capital said the disposal will be implemented in multiple tranches to third-party buyers at an undetermined price.
Kenanga Research said if the disposal takes place at the same price of PBB’s market closing price on March 14, which was RM4.48, then the total disposal proceeds should amount up to RM987mil.
Kenanga Research said it was maintaining an “outperform” call on LPI Capital with an unchanged target price of RM16.
It said the target price represented a 25% premium against the industry average price-earnings ratio of 2.1 times, which it believes is fair given the better net margins of 18% to 20%, and higher dividend returns of 6% to 7%.
“LPI Capital’s premium valuation may also be supported by its long-term viability from its affiliation with PBB with the pending acquisition further solidifying synergies,” it said.
Kenanga Research said risks for LPI Capital include lower-than-expected insurance underwriting and higher-than-expected claims and management expense.
