News

Both Affin and AMMB announced that BNM has no objection for both to commence preliminary negotiations with Hwang- DBS (Malaysia) Bhd (HDBS) for the acquisition of HwangDBS Investment Bank and other financial services businesses of HDBS.

Comment

HDBS is currently trading at 1.15x book. While pricing is still a sensitive issue, we suspect it could be between 1-1.4x book or RM3.68-5.15.

For AMMB, the acquisition will propel it to become the largest broker (in terms of market share) in the country. Meanwhile, merger with Affin will propel the LTAT backed IB into the top three broker domestically.

Moreover, HDBS’s relatively stronger presence in the retail segment (especially in northern Peninsular) will complement Affin’s and AMMB’s relatively more institutional business.

Given that HDBS is currently trading at around RM1bn market capitalization, both Affin and AMMB have the capital capacity to consummate the merger without severely affecting their capital ratios.

However, this is a very people oriented business. Retaining critical staff/remisiers is of upmost importance to enable extraction of post-merger synergistic benefits. Pricing is also critical as risk of overpay would weigh down on the benefits.

Hence, we view any potential deal as slightly positive at this juncture.

Risks

Risk of recession and its impact on asset quality, non-interest income growth as well as more macro prudential measures.

Rating

OVERWEIGHT

• Positives – Best proxy to the impact of ETP (sector with third highest multiplier effect), domestic consumerism and economy, strong asset quality, robust capital ratios, capital management and M&As.
• Negatives – Competitive pressure on margin, potential of global recession which would increase the possibility of rise in delinquencies.

Top Picks

• RHB Cap, Maybank & AFG. Maintain Hold call on Affin and AMMB.

Source: Hong Leong Investment Bank Research - 16 Apr 2013