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HwangDBS acquisition to boost Affin’s position in the industry

by Ronnie Teo, ronnieteo@theborneopost.com. Posted on September 6, 2013, Friday

WINNING THE RACE: An Affin Bank logo is on display at its branch in Putrajaya, outside Kuala Lumpur. The exclusive agreement signed between Affin and HwangDBS also implied that AMMB was no longer in the race. — Reuters photo

KUCHING: Affin Holdings Bhd (Affin) has announced to Bursa Malaysia of its exclusivity agreement with HwangDBS (M) Bhd (HwangDBS) to acquire the latter’s investment banking and asset management businesses, enabling the latter to raise its broker rating from 10th to second position based on trading value.

The exclusive agreement signed between Affin and HwangDBS also implied that AMMB HOldings Bhd (AMMB) was no longer in the race.

An analyst with MIDF Amanah Investment Bank Bhd (MIDF Research) Kelvin Ong in his research note highlighted that the acquisition will improve the broker ranking of Affin Investment Banking and enlarge the assets managed by Affin Fund Management (AFM).

Based on the year to date statistics up until August 2013, the acquisition of HDIB will enable Affin to raise its broker ranking from 10th to second position based on trading value,” Ong added.

Also, assets under management (AUM) by AFM will be enlarged to an estimated RM19 billion with the acquisition of 70 per cent equity in HwangDBS Investment Management and 49 per cent equity in Affin Investment Management from RM1.93 billion as at end-2012.”

Given that the details of this potential acquisition remain scanty at this point, Alliance Research Sdn Bhd (Alliance Research) analyst Cheah King Yoong made no change to earnings estimates for Affin.

“We maintain our buy recommendation and target price for Affin of RM4.78 per share. A five per cent discount on our full valuation is maintained given uncertainties arising from its proposed acquisition of HwangDBS,” he noted.

“On the other hand, the failure to acquire HwangDBS will not change our Neutral recommendation and target price of RM7.89 for AMMB, since we have yet to factor in any impact of the potential acquisition of Hwang DBS’ businesses into our earnings and valuation models of AMMB.”

Nonetheless, investors who are looking to capitalise on this M&A theme by investing in HwangDBS need to be aware that there are still considerable uncertainties in this transaction, the Alliance Research analyst forewarned.

These uncertainties, he said, include sale proceeds may not be settled entirely in cash, the transaction only involves the sale of HwangDBS’ selected assets instead of the equity shares of Hwang-DBS via a mandatory general offer, and there is uncertainty whether Hwang-DBS will distribute sale proceeds, in part or in full, to its shareholders.

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