KUALA LUMPUR: RHB Research said a possible move by Public Bank Bhd to take over LPI Capital Bhd, could value it at RM5.3 billion.
In a note the research firm said the suspension of shares in both Public Bank and LPI Capital lends credence to media reports of a merger and acquisition (M&A) deal.
RHB Research said an all-cash deal would be earnings and return of equity (ROE) accretive, and would move Public Bank's cash and stock holdings (CET1 Ratio) to a more optimal level – in line with management's recently stated objective of "optimising capital to maximise ROE".
A share swap would be largely neutral.
RHB Research said apart from the financial effects, it believes the deal could be part of management's plan to improve non-interest income contribution and follows on the back of its earlier acquisition of RHB Securities Vietnam for RM65 million.
"While the move into manufacturing could raise questions (vs focusing on distribution), it could be that management sees better synergies by being able to offer a full suite of products and services.
LPI is mainly involved in the general insurance business, with a presence in Malaysia, Singapore, and Cambodia.
In the first half of 2024, it recorded a net profit of RM179 million, up 31 per cent year-on-year from a reversal of previous reinsurance reserves in relation to its fire insurance segment.
LPI Capital is 42.74 per cent-owned by Consolidated Teh Holdings Sdn Bhd, a private investment vehicle of Public Bank founder the late Tan Sri Teh Hong Piow.
RHB Research said Public Bank's potential acquisition of LPI Capital is expected to enhance its financial year 2025 (FY25) to FY26 net profit and return on equity (ROE) by 4 per cent and 40 basis point (bps) respectively, but at the expense of capital.
The firm estimated the deal could lower the group's CET1 ratio to 12.9 per cent from 14.5 per cent before recovering to 13.8 per cent and 14 per cent by end-2025 and 2026 respectively.
"Assuming that Public Bank issues new shares for the acquisition, we estimate the impact would be broadly neutral to earning per share (EPS), ROE, and capital. "We also estimate that in such a scenario, the stake of the estate of the late Tan Sri Teh Hong Piow in Public Bank could rise to 24.6 per cent from the current 23.4 per cent," it said.
RHB Research maintained its "Buy" call on Public Bank with a target price of RM5.30 pending further details on the deal. Ends