KUALA LUMPUR (Oct 11): Public Bank Bhd's (KL:PBBANK) acquisition of a 44.15% stake in insurer LPI Capital Bhd (KL:LPI) for RM1.72 billion is considered "fair and reasonable", as the deal is expected to boost earnings of the country third-largest banking group by assets while maintaining strong capital ratios, analysts said.
However, analysts are less optimistic that LPI's remaining shareholders will be enticed to sell their stakes through the mandatory general offer at RM9.80 per share, given the steep discount.
Public Bank's common equity Tier 1 (CET1) ratio is expected to decline to 12.4% from 13.0% at the commercial bank level, and to 14.3% from 14.5% at the group level, Maybank Investment Bank said in a note, adding that these levels are still comfortable.
"We estimate a marginal 1.4% enhancement of Public Bank’s earnings for the financial year ending Dec 31, 2025, and a slight increase in the return on equity ratio to 12.9% from 12.7%," the house said.
CIMB Securities also views the acquisition positively, noting that it is less dilutive in terms of its impact on CET1 ratios. The research house cited key drivers of Public Bank, including lower funding costs, strong asset quality, potential loan growth, and higher dividends.
However, it also flagged downside risks, such as worsening asset quality if inflation rises and higher funding costs.
Meanwhile, MIDF Research noted that the acquisition would allow Public Bank to offer a broader range of complementary financial services, establishing a stronger presence in the country's general insurance market, which is expected to be value-accretive for the enlarged group.
"This acquisition accelerates its vision of becoming one of the few companies in the industry to offer a 'universal banking model' that provides a comprehensive and diverse range of financial and related services under one group," MIDF noted.
Restricted offer for sale may lead to share overhang, says CIMB
Meanwhile, CIMB raised concerns about a plan by the late bank founder Tan Sri Teh Hong Piow's family to reduce their stake to 10% via a restricted offer for sale (ROFS), noting that it could potentially lead to a share overhang.
The Teh family, through Consolidated Teh Holdings Sdn Bhd and the estate of the late Teh, currently holds a 23.41% stake, making them the largest shareholders of the bank.
CIMB estimated that the family will need to offer 2.6 billion shares for the ROFS, based on the bank's issued share capital of 19.4 billion shares.
"We believe this could raise concerns about a potential share overhang, but on the flip side, the ROFS is spread over a long period. Therefore, the immediate impact may not be as significant," CIMB noted.
Kenanga Research, meanwhile, said the ROFS, which would release 2.6 billion shares over the next five years, equates to an average disposal of 40 million shares per month.
"This is unlikely to be a major concern for the market, as the average monthly traded volume of Public Bank shares over the past five years was around 310 million shares," Kenanga said.
At the time of writing on Friday, Public Bank shares were down 19 sen or 4.2% to RM4.38, with some 887 million shares traded, giving the bank a market value of RM84.6 billion. It was among the top movers of the day on Bursa Malaysia.
LPI shares dropped 40 sen or 3.1% to RM12.60, valuing the company at RM5.02 billion, making it one of the top losers on the local bourse.