DEVELOPMENT

• According to a media report yesterday, there is apparently a corporate development at Public Bank Bhd whereby it is believed to be undertaking a potential acquisition of a related company. It is reported that the development may be in relation to LPI Capital Bhd.
• LPI Capital Bhd wholly owns Lonpac Insurance Bhd, a leading general insurance provider in Malaysia.
• Subsequently, trading in the securities of both companies will be suspended from 9am today (Wednesday), 9 October 2024, pending an announcement.
• We should note that both Public Bank and LPI Capital have common shareholders. Consolidated Teh Holdings is the private investment vehicle of the late Tan Sri Teh Hong Piow, the founder of Public Bank.

OUR VIEW

• An interesting and surprising development. While pending any announcement by both parties, it is wildly speculated that Public Bank will be acquiring LPI Capital. We view 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.
• Would be value accretive but not by much. Assuming that this development is as speculated, with a 100% acquisition (LPI's market capitalisation as of 8 October 2024 is RM5.2b) and completed in FY25, we do see it to be value accretive for Public Bank but not significant.
• Will not be a complicated transaction. Again, speculating if this development is true, we do not foresee any difficulties in the supposed transaction. For context, LPI market capitalisation as of 8 October 2024 is RM5.2b, while Public Bank's is RM88.7b. Meanwhile, Public Bank has a cash reserve of RM12.4b.
• Advantage will be on leveraging networks and bundling. While the speculated transaction will be value accretive, we opine it will be significant. It will depend on any post-merger plans. We believe that it could unlock some synergy such as leveraging on both party's customer networks and bundling of products.
• No change to earnings estimates. We make no change to our earnings estimates for now, pending any announcement.
• Maintain BUY call. All-in, we are neutral with a slight positive bias should this speculated transaction is true. We maintain our BUY call for LPI with TP of RM14.52. We like Public Bank for its robust asset quality and somewhat attractive dividends. Our TP is based on FY25 P/BV of 2.42x.

Source: MIDF Research - 9 Oct 2024