MGO for LPI has lapsed without fulfilling the acceptance level

Public Bank (PBB) has announced that its Mandatory General Offer (MGO) for LPI Capital Berhad (LPI) has lapsed after failing to meet the required acceptance threshold. As of the offer’s close, PBB and its Persons Acting in Concert (PACs) collectively held 197.48mn LPI shares, equivalent to 49.57% of the company’s total issued shares—just shy of the critical 50% threshold needed for the offer to succeed.

To recap, in October 2024, PBB acquired 175.9mn LPI shares (a 44.15% equity stake) for RM1.72bn, or RM9.80 per share. As this exceeded the 33% threshold, PBB was obligated to extend an MGO for the remaining shares. Assuming full acceptance of the MGO, the total purchase consideration for LPI could have reached RM3.9bn. At RM9.80 per share, we viewed the acquisition price as fair, with an implied PBV of 1.7x — modestly above the recent average of 1.6x for similar transactions in Malaysia.

Outcome within expectations

Nevertheless, we are not surprised by this outcome. As highlighted in our October 11, 2024, report, while the premium valuation of 1.7x PBV seemed justified due to the strategic benefits of gaining a controlling stake in LPI, the offer price represented a notable 23.7% discount to LPI’s 5-day volumeweighted average price (VWAP) at the time. Additionally, the offer price was below LPI’s prevailing PBV of approximately 2.3x.

Given these significant discounts, we believe that it was unlikely that minority shareholders would accept the MGO, especially with PBB noting that LPI’s listing status would be retained.

Financial Impact and Recommendation

The lapse of the MGO has no material impact on our earnings estimates for PBB. We maintain our Buy rating on the stock, supported by our view that the bank is well-positioned to capitalise on healthy consumer spending and sustained growth in SME activities due to its sizeable market share of around 18%.

For the upcoming 4Q24 results, management continues to uphold its targets, including an anticipated 5-6% loan growth, although NIM may see some compression during the quarter due to seasonal competition for deposits. On asset quality, management is confident that FY24 credit costs will remain below the 5-10 bps target. Management anticipates that ROE could finish the FY at a higher 13% compared to their earlier guidance of 12.5%.

We maintain PBB’s TP at RM5.36. Our valuation is based on an implied PBV of c. 1.64x based on the Gordon Growth Model and a 3% ESG premium.

Source: TA Research - 10 Jan 2025