KUALA LUMPUR : Malayan Banking Bhd (Maybank) is acquiring a 44.63% controlling stake in Singapore-listed stockbroking firm Kim Eng Holdings Ltd in an all cash deal worth S$798.44 million (RM1.9 billion) or S$3.10 a share, and will offer to take over the company at a total cost of S$1.79 billion.

The deal is expected to help Maybank secure an established clientele in more regional markets to boost its stockbroking and investment banking operations, Maybank said in a statement to Bursa Malaysia yesterday.

Maybank via its wholly owned subsidiary, Aseam Credit Sdn Bhd, entered into separate conditional sale and purchase agreements with Kim Eng’s chairman and chief executive officer Ronald Anthony Ooi Thean Yat, and Yuanta Securities Asia Financial Services Ltd (Yuanta) to acquire both parties’ respective 15.44% and 29.19% stakes in Kim Eng.

The acquisition price values Kim Eng at S$1.79 billion and will see Maybank making a general offer for the remaining shares it does not own.

Under the exercise, which will rely on internal funds and external financing, Maybank is also expected to initiate general offers for Kim Eng’s listed units in the Philippines and Thailand. This could mean an additional capital outlay of RM500 million, according to Maybank.

“Maybank has a strong commercial banking presence in Asean, but its stockbroking and investment banking capabilities are currently limited to Malaysia only.

“Kim Eng, in contrast, has a strong stockbroking, distribution and investment banking capabilities across Asean but is not bank-backed,”  Maybank said.

With Kim Eng on board, Maybank will emerge as one of the top five stockbroking firms in Singapore, Thailand, Indonesia and the Philippines, besides having an active presence in Hong Kong, Vietnam, New York, London and India, Maybank said.

At S$3.10 a share, the acquisition values Kim Eng at a price-to-book multiple of 1.91 times and a price to earnings ratio (PER) of 20 times, based on its net profit of S$89.34 million for the financial year ending Dec 31, 2009. For the nine months to Sept 30, last year, Kim Eng posted a net profit of S$50.15 million.  

The purchase price is a 15% premium to the closing price of Kim Eng shares prior to the stock’s trading suspension yesterday.

It should be noted that Kim Eng’s share price had surged 46.7% in the past one month alone, from S$1.84 on Dec 6, last year, to its pre-suspension price of S$2.70 on Wednesday.

Analysts say the deal appears expensive for now, but taking into account higher stock trading volumes this year, the effective price for Kim Eng will likely be lower going forward.

More importantly, they note it will give Maybank an important platform to expand its reach and become a major regional player.  

The track  record of Maybank in effectively integrating deals has not been particularly promising in our view. Hence, we are reluctant to impute any value accretion from this deal,” said JP Morgan in a report.

The deal appears to be generally neutral from an EPS and valuation perspective for Maybank.  

The acquisition PER of Kim Eng, at 20 times, is higher than Maybank’s own forward consensus PER of 14.8 times.

In terms of price-to-book ratio though, Kim Eng’s 1.91 times is slightly lower than Maybank’s 2.25 times.         

In any case, any financial impact is expected to be minimal in the near term given Maybank’s large size.

The RM4.26 billion or S$1.79 billion price tag for Kim Eng amounts to 6.5% of Maybank’s current market capitalisation of RM65.97 billion.

Meanwhile, bond rating agency Standard & Poor’s said its credit rating for Maybank has not been affected by the bank’s planned acquisition of Kim Eng.

“We consider the proposed acquisition to be in line with the bank’s strategy of becoming a leading regional financial services provider in Southeast Asia.

“The transaction would combine Maybank’s commercial banking operations with Kim Eng’s stock broking presence in the region,” the rating house said.

At a press conference yesterday, Maybank president and CEO Datuk Seri Abdul Wahid Omar said Maybank had a sufficient capital base to finance the acquisition with internal funds and external financing.

Abdul Wahid said Maybank planned to sell Singapore dollar-denominated bonds to finance the exercise. “[But] we don’t plan to do a rights issue,” he said.

He added that the acquisition price for Kim Eng at at price-to-book multiple at 1.91 times was fair because Kim Eng already had an established regional presence.

Abdul Wahid said the acquisition price for Kim Eng was benchmarked against the 1.5 times to two times price-to-book multiple seen in  past transactions involving entities comparable to Kim Eng.

He said Maybank would approach Japan-based Mitsubishi UFJ Financial Group, which is the second largest shareholder in Kim Eng with a 28.05% stake, on the merits of the acquisition.

In line with the exercise, Maybank also plans to initiate general offers for Kim Eng’s listed units in the the Phillippines and Thailand.

Kim Eng is the single largest shareholder, with a 42.4% stake, in Philippines-listed ATR Kim Eng Financial Corp, and owns 55.3% in Thailand-listed Kim Eng Securities (Thailand) Public Co Ltd.

Abdul Wahid said Maybank would hold talks with the regulators in both countries on the potential general offers for the shares in ATR Kim Eng and Kim Eng Securities (Thailand).

With the inclusion of Kim Eng’s global portfolio into Maybank’s stable, a crucial question is whether the acquirer would continue to maintain Kim Eng’s banner under the combined group’s operations.

While Abdul Wahid acknowledges that both companies have their respective branding prowess, he did not specify the branding dynamics for the merged entity in the future.

“We will do a brand audit,” he said adding that Maybank would appoint representatives to the board of Kim Eng, which recently inked a deal with Berjaya Corp Bhd’s (BCorp) Inter-Pacific Securities to undertake a joint venture for stockbroking operations in Malaysia.

Abdul Wahid said Maybank would also approach BCorp to iron out operational issues following the acquisition of Kim Eng.

The deal with BCorp was to give Kim Eng an entry into the Malaysian market. However, with the latest turn of events, analysts note that Inter-Pacific Securities no longer fits into the picture.  

On whether Maybank was still keen to acquire OSK Holdings Bhd as speculated earlier, Abdul Wahid said Maybank had scanned the market for potential acquisitions, and eventually found that Kim Eng was the best option to spur Maybank’s regional expansion.

Maybank was earlier widely rumoured to be courting OSK Holdings for its regional presence, but market talk had it that the asking price for OSK was too high.

At current prices, the cost of acquiring OSK Holdings would have been half of Kim Eng.

OSK Holdings currently has a market capitalisation of RM2.07 billion, and is trading at 1.42 times book and 18 times forward earnings, according to consensus forecast.

However, market rumours suggest that OSK’s major shareholders had asked for a much higher price-to-book multiple.   

In a separate statement issued prior to the press conference, Maybank chairman Tan Sri Megat Zaharuddin Megat Mohd Nor said the move was a great leap forward for Maybank so early in the new year.

“Kim Eng is a perfect complement to our existing strengths in investment banking and the equities market. It gives us the immediate platform to aggressively build our global wholesale banking capabilities in Asean and beyond.

“Our combined synergies signal interesting times for us in the region this new year and the long term. Immediately, Kim Eng gives us entry into Thailand. We are excited over the tremendous opportunity we will have to grow our business there. We welcome the Kim Eng leadership team and employees into the Maybank Group,” he said.

Ooi, who will continue to lead Kim Eng as CEO for at least three years following the exercise, said the firm looks forward to being part of Maybank.

“This transaction allows us to take our business to the next level, with the support of Maybank’s strong balance sheet and well-entrenched client  relationships,” he said.

Maybank’s acquisition of Kim Eng follows the Malaysian bank’s purchase of a controlling 55.6% stake in PT Bank Internasional Indonesia for RM4.26 billion in 2008. The stake was acquired from Singapore government investment arm Temasek, and South Korea’s Kookmin Bank.

At a glance, the inclusion of Kim Eng into Maybank’ stable is deemed to have narrowed the competitive gap between Maybank and local arch rival CIMB Group Holdings Bhd when it comes to having a regional presence.

CIMB Group had acquired Singapore stockbroking firm GK Goh Holdings Ltd for S$239.14 million in 2005 , valuing the transaction at a then price-to-book multiple of 1.35 times.

The acquisition was widely seen as the key platform that propelled CIMB Group into becoming a regional player, as it later built on and expanded its market reach in the region.  

CIMB Group is also the major shareholder in Bank CIMB Niaga in Indonesia, and CIMB Thai in Thailand.

Maybank’s expansion is in line with the government’s Economic Transformation Programme (ETP), which aims to create more regional champions among Malaysian banks.  

Under the ETP local banks are expected to increase their proportion of overseas income over total profits to 27% by 2020 from around 17% now through a greater presence in Asean and international markets.

Investors will closely watch Maybank’s regional transformation plans as the pieces fall into place following the series of strategic acquisitions in recent years, culminating in this latest purchase.

This article appeared in The Edge Financial Daily, January 7, 2011.