Published: Tuesday January 15, 2013 MYT 9:33:00 AM
Maybank Research neutral on Hong Leong Capital privatisation
KUALA LUMPUR: Maybank Investment Bank Research is neutral on the privatisation of Hong Leong Capital (HL Cap), which will streamline the group but has little impact financially on Hong Leong Financial Group (HLFG).
"We maintain our Buy on HLFG with a marginally higher sum-of-parts derived target price of RM15.70 (RM15.60 previously), on pegging HL Cap's valuation to its book value," it said on Tuesday. To recap, HLFG plans to take private HL Cap via a cash offer at RM1.71 a share, which is one sen above its book value of RM1.70 a share end-September 2012. The offer is also a 20% premium to its closing price of RM1.42 a share.
"The offer is fair, in our view. Given the lack of liquidity and interest, HL Cap has historically traded at a discount to book value and this would be an opportunity for HL Cap shareholders to cash out at a decent price. HLFG does not intend to maintain the listing status of HL Cap and there will be the compulsory acquisition of shares once HFG secures an acceptance of at least 90%," the research house said.
Maybank Research said the cost would be minimal to HLFG. HLFG holds a 79.09% stake in HL Cap (83.2% excluding shares held by HL Cap for ESOS). The acquisition of the remaining stake would entail the purchase of an additional 51.6m shares at a total cost of RM88mil.
The financial impact to the group is immaterial. HL Cap reported a pretax profit of MYR50m in FY12, accounting for 2% of HLFG's group earnings.
"Our sum-of-parts (SOP) valuation for HLFG is raised marginally by 10 sen to RM15.70 to incorporate HL Capital at book value rather than at market price.
"We value 64%-owned HL Bank at a P/BV of 2.1x. 70%-owned HL Assurance and 30%-owned MSIG are pegged to a P/BV of 2.2 times and 1.5 times respectively. Our SOP incorporates a holding discount of 20%," said Maybank Research.