PP 7767/09/2010(025354)

8 July 2010

Malaysia Corporate Highlights RHB Research

Institute Sdn Bhd
A member of the
RHB Banking Group
MARKET DATELINE
Sector New s U pda te Company No: 233327 -M

Banking 8 July 2010

Ball Back In HL Bank’s Court? Recom : Overweight

(Maintained)

Table 1: Sector Valuations

PER (x) EPS gwth (%) P/BV (x) ROE (%) Net Div Yld (%)
Price FV Rec FY10 FY11 FY10 FY11 FY10 FY11 FY10 FY11 FY10 FY11
Maybank 7.54 9.66 OP 14.7 12.4 35.7 18.1 2.0 1.8 14.0 15.2 2.9 3.5
CIMB 7.00 8.40 OP 14.7 12.4 20.2 17.9 2.3 2.1 16.1 17.4 1.3 1.3
Public Bank - L 11.90 13.75 OP 14.5 13.0 11.8 11.8 3.3 2.9 24.2 23.8 3.8 4.1
AMMB^ 5.00 6.60 OP 12.5 10.9 14.8 14.6 1.4 1.3 11.9 12.3 2.8 3.2
AFG^ 2.94 3.40 OP 12.1 11.1 25.2 9.1 1.4 1.3 12.2 12.0 2.2 2.2
Affin 3.00 3.55 OP 10.9 10.1 10.5 7.6 0.9 0.9 8.6 9.0 2.1 2.1
EON Cap 6.89 7.92 MP 12.8 11.3 9.4 13.2 1.2 1.1 10.0 10.4 1.5 1.5
HLB 8.60 9.20 MP 14.4 14.4 (4.7) 0.2 2.1 1.9 14.8 13.4 2.1 2.1
RHB Cap* 5.85 NR NR 9.4 8.4 10.7 12.9 1.3 1.2 14.6 14.8 3.1 3.3
Sector Wt. Avg 13.9 12.2 19.5 14.4 2.2 2.0 16.3 16.9 2.6 2.8
*Not under coverage ^FY10-11 refers to FY11-12

♦ EON Cap’s board to proceed and table offer to shareholders ... EON Chart 1. Industry NPL
Cap announced yesterday that its Board had reaffirmed its decision to
table HL Bank’s offer for EON Cap’s assets and liabilities to shareholders
for their consideration and approval.
♦ … but Board’s decision to accept offer now factors in ongoing
court case ... Apart from approvals to be obtained from shareholders and
the Minister of Finance for the offer, it appears that EON Cap’s Board has
attached another condition to accepting the offer, i.e. the final decision of
the court with respect to the petition filed by Primus. This condition, we
think, is to allow the directors to cover all bases especially given that,
except for Mr. Ng Wing Fai, they have been named in Primus’ petition.
Chart 2. Industry LLC
♦ … where trial is only scheduled to start in Sep, after the 15 Aug (%)

deadline. As mentioned previously, the court has fixed the case for trial 95

90

starting from 20 Sep. Hence, with the added condition above, it is unclear 85

how this would affect the 15 Aug deadline as set by HL Bank. That said, 80

75
we do note from the earlier announcements that the relevant approvals 70

that need to be obtained by 15 Aug are from: 1) BNM/the Minister of 65

Finance; 2) shareholders of EON Cap and HL Bank; and 3) the Securities

60

55

Commission, all of which, in theory, appears possible in our view. We also 50

do not rule out the possibility that this deadline could be extended further 45

40

by HL Bank. On the whole, the recent developments suggest that the 35

saga could continue to drag on.

Jan-99 Ja n-01 Jan-03 Ja n-05 Jan-07 Ja n-09

♦ Resolution needed soon. We retain our view that one way or the other,
the issue of HL Bank’s offer would need to be resolved soon as the longer
the issue drags on, it may affect the execution of business plans and
impact operations, in our view.
♦ EON Cap. We have retained our fair value of RM7.92 (13x CY11 EPS) and
Market Perform call on the stock. In the near term, we believe the
potential appreciation in EON Cap’s share price would likely be capped at
HL Bank’s offer price (RM7.30/share). The offer aside, fundamentally,
EON Cap’s 1QFY10 results have helped to reinforce our view that its
fundamentals are improving. Thus, we continue to hold the view that HL
Bank’s offer is too low and we do not discount the possibility that EON
Cap’s shareholders may reject the offer, thereby “forcing” HL Bank to
increase its offer price.
♦ HL Bank. Our fair value of RM9.20 (15x CY11 EPS) and Market Perform
call for HL Bank is unchanged. In our view, the offer is a good deal for HL
Bank and would likely be EPS enhancing, even after taking into account
the proposed rights issue. From a qualitative perspective, the acquisition
would help lift the bank’s market share in the HP and SME segments as David Chong, CFA
well as propel the bank to become the fourth largest bank in Malaysia in (603) 9280 2186
terms of total assets (from sixth position currently). david.chong@rhb.com.my

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 8 July 2010

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