Public Bank Berhad has scheduled a press conference this Thursday (Oct 10)1, which is expected to contain announcement of the rumoured acquisition of LPI Capital that could broaden the bank’s direct investment in the insurance sector and catalysed the restructuring of the bank’s books, according to Kenanga Investment Bank Bhd (Kenanga Research).
At present, Public Bank’s direct exposure in the insurance space is limited to its 30%-owned AIA Public Takaful Bhd, supplemented by Takaful family products.
LPI Capital’s general insurance business makes up about 7% of the market share.
Analysts opine it may not be too farfetched for Public Bank to seek further opportunities in the sector, though the 7% market share is not considered dominant.
If indeed a proposed deal is put on the table, this may incorporate a mix of cash distribution and share swaps to ensure that minority shareholder interest is not overly diluted, backed by Public Bank’s cash pile of RM12.4 billion.
Both Public Bank and LPI Capital have requested for a suspension of share trading today (Oct 9).
Consolidated Teh Holdings Sdn Bhd, who holds 21.64% ownership of Public Bank, also owns 42.74% of LPI Capital.
Local media has speculated that Public bank, one of the top three banks2 by asset valuation, is eyeing to acquire the 42.74% stake of Consolidated Teh Holdings in LPI Capital.
Based on the share ownership information compiled by Market Screener, Consolidated Teh’s 21.64% Public Bank stake is followed by Employees Provident Fund, or EPF (14.63%) and Kumpulan Wang Persaraan (4.07%). Other Malaysian stakeholders include Eastspring Investments Bhd (1.78%), AIA Bhd (1.04%), Public Bank Group Officers Retirement Benefit Fund, or PBGORB Fund (0.74%), and notably LPI Capital (1.10%).
Based on estimation, at least 2.94% of Public Bank’s share ownership is held by Singaporean entities including Great Eastern Life Assurance Co Ltd, GIC Pte Ltd and Eastspring Investments (Singapore) Ltd.
On the other hand, LPI capital, as noted earlier, is 42.74% owned by Consolidated Teh Holdings. Other major stakeholders include Public Mutual Bhd (11.12%), Sompo Holdings Inc of Japan (8.54%), PBGORB Fund (4.71%), EPF (2.50%), Permodalan Nasional Bhd (1.70%), and an estate holding (1.41%) related to Tan Sri Dato’ Sri Dr Teh Hong Piow, the late founder of Public Bank.
On the regulatory side, Kenanga Research noted that acquiring an insurance company comes with a more punitive treatment that requires the deduction of the entire investment for LPI Capital from Public Bank’s capital level.
Hypothetically, fulfilling an equity requirement of 42.7-100% would translate to the issuance of around 485m-1,133 million new shares or the dilution of 2.5%-5.8% to shareholders.
Kenanga Research has awarded an OUTPERFORM call for Public Bank, also one of the top picks for the banking sector, coupled by a target price of RM5.10. Meanwhile, LPI Capital has been awarded an OUTPERFORM rating, with a target price of RM15.00.
As at closing on Oct 8, Public Bank’s shares settled at RM4.57, down from the 30-day high settlement of RM4.81 recorded on Sept 10. Meanwhile, LPI’s stock closed at RM13.00 on Oct 8 after gaining a massive 22 sen, but still below the 3-month high of RM13.44. (Stock updates and historical data from www.bursamalaysia.com)
