OCBC BANK 19-Jan-14 OCBC has agreed to subscribe to 207.5m new ordinary shares in Bank of Ningbo for Rmb8.85/share. The total consideration of Rmb1.8bn (S$383m) will be funded internally. The transaction, which is expected to be completed in 3Q14, will increase OCBC’s stake in Bank of Ningbo from 15.34% to the maximum 20.00% permissible for foreign investors. CIMB is positive on any increase in its stake in Bank of Ningbo, as the latter has been helping OCBC tap the Chinese market. Bank of Ningbo is a well-run bank with strong ROEs of 19.9%, and a presence in the major cities of China. It is strong in servicing SMEs and providing trade finance in China, which will complement OCBC’s operations in the region. OCBC is also believed to be in discussions to acquire Wing Hang Bank at a valuation as high as 1.9x P/BV. This implies a price tag of HK$38.8bn (S$6.3bn). OCBC is said to be in talks with several lenders to finance its acquisition with short-term debt, with possible plans to raise funds through equity to repay the loans. At 1.9x P/BV, CIMB believes OCBC could be overpaying for Wing Hang as the latter’s forecasted ROEs of 9-10% are lower than OCBC’s 11-12%, yet OCBC is trading at a lower P/BV of 1.2x. OCBC will have to issue shares to fund the acquisition, which could result in earnings dilution. It’s CET1 ratio will also be pushed below the regulatory minimum of 9.0%. Although value is starting to emerge after its recent underperformance, fears of dilution and a share overhang could cap its share-price recovery, when it is still in talks to buy Wing Hang. CIMB maintains its target price (GGM, implying1.24x P/BV) and Reduce rating, with de-rating catalysts expected from a potential overpayment for Wing Hang.
Posted on: Sun, 19 Jan 2014 00:29:28 +0000
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