Thursday June 20, 2013

Low bids for Hwang-DBS due to the banking group’s poor Q3 results (update)


PETALING JAYA: This is the final week of bid submission for the acquisition of Hwang-DBS (M) Bhd, and bids are at the low end, with bids coming in only one times price to book value (P/BV), according to a source close to the deal.

The source said that the low bids were due to Hwang-DBS' recent poor third quarter results. He added that Hwang-DBS' board of directors would be meeting today to decide among other things, which bank would be better suited as its partner.

Hwang-DBS is one of the biggest stand-alone investment banking group in Malaysia and is the acquisition target of both Affin Holdings Bhd and AMMB Holdings Bhd.

If the bids are only at one time P/BV, it will be one of the lowest transaction valuation in the banking sector and set a new pricing precedent for future takeover targets.

Banking analysts said that the price to book valuation for past investment bank mergers and acquisitions have averaged at about 1.31x.

Previously, RHB Capital Bhd paid 1.77 times (x) for OSK Investment Bank and Malayan Banking Bhd paid 1.9x for Kim Eng Securities.

Earlier this year, Tan Sri Quek Leng Chan, via Hong Leong Financial Group Bhd had proposed to take its then 79.09%-owned unit HLCap private for RM1.71 per share or one time book value in January.

The deal however lapsed as it only received a mere 2.24% in acceptances from shareholders as of its closing date.

The share price of Hwang-DBS have been on a downtrend since June 13, which also coincided with the announcement of its financial results on June 12.

From its peak of RM4.52 on May 13, the stock has dropped sharply over the last few days. On Wednesday, it closed down three sen to RM4.08 on volume of 168,300 shares.

At its current price of RM4.08, Hwang-DBS is trading at 1.1x its book value of RM3.70. A takeover price of 1x book would value Hwang-DBS at RM944.2mil.

Hwang-DBS' net profit for the third quarter ended April 30 was down to RM11.3mil from RM18.3mil a year ago despite higher revenue. Revenue for the quarter under review stood at RM111mil against RM110mil in the corresponding quarter last year.

This was due to unfavourable effects of foreign exchange, lower brokerage income and reduction in net gain on securities held-for-trading, partly cushioned by increase in income from investment management activities and increase in net unrealised gain on derivatives portfolio.

For the nine-month period, Hwang-DBS net profit fell to RM30mil from RM47.9mil in 2012.

The group attributed the decline in profit to, among others, higher loan loss provisioning and corresponding increase in commission expense in line with increase in investment management activities.

The acquisition of Hwang-DBS is seen to be synergistic for Affin and AMMB as both banks are looking to strengthen their fund management and equities business.

Hwang-DBS is the country's third largest stockbroker with some 650 remisiers and RM18.1bil assets. The group's investment bank HwangDBS Investment Bank Bhd is one of only two standalone investment banks in the country.

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