PETALING JAYA: The market views Public Bank Bhd
’s proposed takeover of the bank’s Hong Kong-listed subsidiary, Public Financial Holdings Ltd (PFHL), as largely neutral with minimal impact to the business.
Public Bank on Tuesday announced a proposal to buy the 27% of PFHL that it does not own at HK$2.50 a share or a total of RM380mil cash. The offer represents a 60% premium to the last traded price.
UOB Kay Hian Research, which has maintained a “hold” call and target price (TP) of RM5.54, views the transaction as broadly neutral as the acquisition account for 0.1% of the bank’s total assets while incremental earnings contribution from the remaining stake being acquired comes to just 0.1% of total earnings.
It noted that there was potential for capital optimisation as PFHL has a well-capitalised common equity tier 1 (CET-1) ratio of 27%, significantly higher than the average Hong Kong banking industry CET-1 ratio of 14% and at the upper end of mid-sized peers’ operating in similar niche lending.
PFHL offers commercial banking, stockbroking, investment property leasing, financing for taxi and public light-bus operators, as well as taxi trading and leasing activities while through its banking subsidiary, it operates a network of 29 branches in Hong Kong and one branch in China.
It believes PFHL less aggressive stance on expanding the loan book leaves it scope to optimise excess capital towards peer levels.
“Assuming CET-1 is reduced to around 20%, broadly in line with the mid-to small-sized bank peer average, we estimate this could potentially release RM414mil of excess capital for upstreaming to Public Bank, equivalent to an additional 0.4% dividend yield,” it added.
CGS International Research said the proposed acquisition would have negligible positive impact to the house’s net profit forecast of RM7.4bil for the bank in the financial year ending Dec 31, 2026 (FY26) from the remaining stake, assuming a net profit of RM50.4mil for PFHL in FY26.
It reiterated an “add” call on the stock with TP of RM6.40 premised on potential re-rating catalysts from its capital management initiatives that should raise its dividend payout ratio to above 70% in FY26 to FY28, a push for fee income growth, and projection of return on equity expanding to 12.5% in FY28 from 12% in FY26.
CIMB Research has maintained a “buy” rating and unchanged TP of RM5.50, pointing out that the move also eliminates recurring compliance and listing expenses while allowing resources to be redeployed towards the bank’s core banking operations and longer-term business optimisation.
“While earnings accretion is negligible, the transaction is mildly net asset value (NAV)-accretive, with NAV per share rising from RM3.10 to RM3.14 as the minority stake is acquired at a deep discount to PFHL’s underlying book value. We are largely neutral on the proposed PFHL privatisation, given its limited impact on earnings, capital, and valuation,” it said.
It added that despite ongoing structural net interest margin pressure, the bank continues to differentiate itself through superior asset quality, conservative provisioning, and strong execution, with healthy loan growth and expanding wealth/fee income providing key earnings support.
