News  AFFIN proposes to acquire 100% interest in HWANGDBS Investment Bank (HWANG IB), 100% interest in HDM Futures S/B (HDMF), 70% Interest in Hwang Investment Management Bhd (Hwang IM) and 49% interest in Asian Islamic Investment Management S/B (AIIM) from Hwang-DBS (Malaysia) Bhd & 17% Minority Stake of Hwang IM from Y.A.M. Tunku Dato’ Seri Nadzaruddin for a total cash consideration of RM1,363m.

 The base price of RM1,363m comprises:- (i)RM1,088m for 100% interest in Hwang IB, (ii)RM262m for 70% interest in Hwang IM and 49% interest in AIIM, and (iii) RM13m for 100% in HDMF.

 The proposed merger is expected to be completed by 3Q14.

Comments  The base price of RM1088m for 100% interest in Hwang IB represents a PBV of 1.28x as at 31 Jan 13, which is within the range of precedent IB transactions in Malaysia (of 1.27x-1.70x). (Please refer to Appendix for details.)

 The base price of RM262m for Hwang IM and 49% interest in AIIM represents a price to assets under management (AUM) percentage of 1.81% based on a combined AUM of Hwang IM and AIIM as at 31 Jan 13, which is also within the range of price to AUM percentage of precedent asset management transactions in Malaysia and Asia Pacific region (of 0.57%-4.02%). (Please refer to Appendix for details.)

 The base price of RM13m for 100% interest in HDM Futures, represents a PBV of 1.03x as at 31 Jan13.

 The purchase price will initially funded via bridge loans of RM1,400m but AFFIN will eventually pursue a fund raising exercise which includes a rights issue of new AFFIN shares to raise gross proceeds up to approximately RM1,250m at a later stage.

Outlook  Apart from potential revenue and cost synergies, the proposed acquisition provides an opportunity for AFFIN to increase the scale of its business in the stock-broking and asset management businesses and strengthen its competitive position in Malaysia by

a) creating a Top 2 brokerage house in Malaysia in terms of both trading value and volume traded, with approximately 10.78% and 14.42% combined market share respectively (based on Bursa Securities equity transactions from Jan13 to Dec13),

b) quadrupling its distribution network to 25 branches and c.770 remisiers (from the existing 6 branches and 218 remisiers), which would enable the combined entity to expand its market reach, and

c) creating a Top 5 asset management company in Malaysia (based on AUM) with proforma combined AUM of RM27.9b.

Source: Kenanga