KEY INVESTMENT HIGHLIGHTS

• Acquiring a 44.15% stake in LPI for RM9.80 per share, a discount to its current price
• The proposed transaction will trigger an MGO but unlikely to see interest given the discount
• Opportunity for the group to offer comprehensive financial product
• Forecasts unchanged
• Maintain BUY | Unchanged TP of RM5.16 | based on an unchanged FY25F P/BV of 1.63x (previously 1.51x)

Acquiring a stake in LPI. It was announced yesterday that Public Bank will acquire 175,896,000 LPI Shares held by the estate of the late Tan Sri Dato' Sri Dr. Teh Hong Piow ("estate") and Consolidated Teh Holdings Sdn Bhd ("Conteh"), representing a total 44.15% equity interest in LPI, for a total cash consideration of RM1.72b or RM9.80 per share. For context, the estate and Conteh held 1.41% and 42.74% stake respectively.

Triggering an MGO. Upon completion of the proposed acquisition, Public Bank's shareholding in LPI will increase from nil to 44.15%. This will also trigger a MGO to acquire all the remaining LPI Shares not already held by the group and persons acting in concert for a cash offer price of RM9.80 per Share.

Acquiring for a discount. Based on LPI's closing price prior to its trading suspension and 5-day VWAP of RM13.00 and RM12.84 respectively, the purchase and offer price is a discount of 24.6% and 23.7% respectively. The offer price implies a P/BV of 1.71x, which is a discount from its current P/BV of 2.3x. With this in mind, we believe that the MGO will not likely see any interest from the remaining shareholders. Public Bank intends to maintain the listing of LPI.

Rationale of the acquisition. The acquisition represents an opportunity for the group to further expand its general insurance segment through the LPI Group's platform to immediately gain a strong foothold and instant access to the LPI Group's client base in Malaysia. Currently, the group's general insurance segment is undertaken in Cambodia via its 55%- owned subsidiary, namely Campu Lonpac Insurance Plc. With this, it would enable the group to provide a comprehensive complementary service to its current financial services offerings and establish a market presence in the general insurance segment in Malaysia, which is expected to be value accretive to the enlarged PBB Group. This would accelerate its vision to be one of the few companies in the industry to have a "Universal Banking Model" that offers comprehensive and diverse range of financial and related services under the same group.

Would be value accretive but not by much. Assuming that the MGO receives full acceptance, the pro-forma impact based on FY23 will see a minor lift to Public Bank's earnings with EPS of 1 sen from 35 sen to 36 sen, which is a +2.8% lift.

Meanwhile, there will be no change to Public's BVPS, and CET-1 ratio impact of only -20bps. Based on our model, we estimate the impact of 5% to our FY25 estimate of Public Bank's earnings.

Forecasts unchanged. Earnings forecast unchanged.

Key downside risks. (1) Poor NOII performance, (2) Slower-than-expected loan growth, (3) Sharper than expected NIM compression.

Maintain BUY call: Maintain GGM-TP of RM 5.16. The TP is based on FY25F P/BV of 1.63x. All-in, we are neutral with a slight positive bias about this proposed acquisition. While the proposed transaction will be value accretive, we opine it will not be significant. Nevertheless, Public Bank is acquiring an established general insurance player at a discount. Furthermore, it could unlock some synergy such as leveraging on both party's customer networks and bundling of products.

(GGM assumptions: FY25F ROE of 12.0%, LTG of 3.5% & COE of 8.7%)

Source: MIDF Research - 11 Oct 2024