Sector Factors Malaysia Banks

Sector Focus Malaysian Banks

Malaysia Equity Research PP 12942/04/2010(023525) 23 Apr 2010

Still in play?

• A possible new offer from Affin for EON Cap may see a higher offer price with a share exchange element. As we think valuations for EON Cap are fair, we do not expect significantly higher offer. • The current all cash option gives EON Cap shareholders a complete exit route. Alternatively a part share option will allow EON Cap shareholders to ride on merged entity. • A Hong Leong Bank-EON Cap pairing would become a stronger entity making it the 4th largest bank in the country. We do not deny that most parts of Affin and EON Cap could complement in terms of business and customer mix.

Offer for RM7.30 for EON Cap by Hong Leong Bank. We understand that Hong Leong Bank has started its due diligence on EON Cap. Note that the deal is currently still exclusive between EON Cap and Hong Leong Bank until the necessary approvals are obtained and/or EON Cap decides to walk out on the offer to consider an alternative. EON Cap is expected to table this proposal to its Board in May/Jun 10. Based on our estimates, an all cash acquisition will be EPS accretive to Hong Leong Bank, while the impact to book value will be neutral and NTA will be diluted due to RM1.5bn of goodwill. Even with the all cash offer by Hong Leong Bank, we do not discount the possibility that Hong Leong Bank may raise equity. With a rights issue, post acquisition, Hong Leong Bank’s capital is expected to remain relatively robust with a Tier-1 CAR of at least 10%. Adding Affin into the equation. Over the past few weeks, talks have been rife that Affin Holdings may put a bid for EON Cap. From what we understand, it appears that Affin may put in an application to Bank Negara to commence negotiations with EON Cap, possibly with a higher offer price with an equity element. We do not deny that most parts of Affin and EON Cap could complement in terms of business and customer mix. If the deal is approved,...