KUALA LUMPUR: The shares of Hwang-DBS (M) Bhd and Alliance Financial Group Bhd (AFG) saw little movement yesterday, following a report of a possible merger between the two.
AFG closed six sen higher at RM3.46 yesterday while Hwang-DBS closed three sen higher at RM2.33 on light trading volume.
Analysts have not ruled out the possibility of a merger taking place.
“It is possible. After all, they are both controlled by the same shareholders, the government of Singapore,” said a banking analyst.
It has been long rumoured that DBS Group Holdings Ltd, which owns 28% of Hwang-DBS, was eyeing the controlling stake in AFG held by Temasek Holdings.
Temasek has a 49% stake in Vertical Theme Sdn Bhd, the holding company that owns 29% in AFG. The remainder of Vertical is owned by Langkah Bahagia Sdn Bhd, which is said to have close ties with former finance minister Tun Daim Zainuddin.
The Employees Provident Fund (EPF) is the second largest shareholder in AFG with a 12% stake.
Temasek had a 12.06% stake in DBS, as at Feb 28, 2011.
Hwang-DBS has a market capitalisation of RM890 million while AFG has about four times that, at close to RM3.4 billion, based on yesterday’s closing price.
Neither AFG nor Hwang-DBS had issued a statement on the rumoured marriage at press time.
An analyst said a merger makes sense to create a banking group with strong banking and stock broking divisions.
“Rather than starting the business on your own, it is better to merge and grow,” said the analyst.
AFG is a favoured banking stock among analysts given its undemanding valuations and good growth prospects.
For 2QFY12 ended Sept 30, 2011, it posted net profit of RM120.95 million, up 18% from RM102.27 million the previous corresponding quarter. Revenue rose 6% to RM314.6 million from RM296.98 million.
The better performance was attributed to better loan growth, non-interest income and improvement in asset quality.
Hwang-DBS, meanwhile, posted a net profit of RM86.61 million for FY11 ended July, up 42% from RM60.87 million a year ago. Revenue increased by 15% to RM399.33 from RM346.94 million.
The banking industry is expected to see tougher environment in the near term given the global economic headwinds.
OSK Research, for one, does not expect a meltdown in asset quality or liquidity, but holds the view that earnings growth momentum has slowed significantly, as reflected in the industry’s paltry pre-provision operating profit growth of 1.3% in the first nine months of the year.
“As growth is expected to moderate even more in 2012, we believe that consensus’ double digit earnings growth projection for 2012 may be a little stretched,” it said in its recent note.
It noted that valuations may not be excessive compared with the sector’s near record-high return on equity (ROE) of 15.8% currently.
It said the upcoming quarter’s earnings underperformance and downgrades may be the catalysts for a further de-rating in sector valuations.
OSK’s buys include Malayan Banking Group Bhd (fair value RM9.60), RHB Capital Bhd (RM9.90), Hong Leong Bank Bhd (RM12.15) and AFG (RM3.80).
It is neutral on CIMB Group Holdings Bhd, with a fair value of RM7.62, Public Bank Bhd (RM14) and AMMB Holdings Bhd (RM6.95).
Analysts said the latest guidelines introduced by Bank Negara Malaysia to promote more prudent lending will not hinder bank growth. The new guidelines include taking due consideration of borrowers’ repayment capability based on their net pay rather than gross pay.
This article appeared in The Edge Financial Daily, November 24, 2011.
AFG closed six sen higher at RM3.46 yesterday while Hwang-DBS closed three sen higher at RM2.33 on light trading volume.
Analysts have not ruled out the possibility of a merger taking place.
“It is possible. After all, they are both controlled by the same shareholders, the government of Singapore,” said a banking analyst.
It has been long rumoured that DBS Group Holdings Ltd, which owns 28% of Hwang-DBS, was eyeing the controlling stake in AFG held by Temasek Holdings.
Temasek has a 49% stake in Vertical Theme Sdn Bhd, the holding company that owns 29% in AFG. The remainder of Vertical is owned by Langkah Bahagia Sdn Bhd, which is said to have close ties with former finance minister Tun Daim Zainuddin.
The Employees Provident Fund (EPF) is the second largest shareholder in AFG with a 12% stake.
Temasek had a 12.06% stake in DBS, as at Feb 28, 2011.
Hwang-DBS has a market capitalisation of RM890 million while AFG has about four times that, at close to RM3.4 billion, based on yesterday’s closing price.
Neither AFG nor Hwang-DBS had issued a statement on the rumoured marriage at press time.
An analyst said a merger makes sense to create a banking group with strong banking and stock broking divisions.
“Rather than starting the business on your own, it is better to merge and grow,” said the analyst.
AFG is a favoured banking stock among analysts given its undemanding valuations and good growth prospects.
For 2QFY12 ended Sept 30, 2011, it posted net profit of RM120.95 million, up 18% from RM102.27 million the previous corresponding quarter. Revenue rose 6% to RM314.6 million from RM296.98 million.
The better performance was attributed to better loan growth, non-interest income and improvement in asset quality.
Hwang-DBS, meanwhile, posted a net profit of RM86.61 million for FY11 ended July, up 42% from RM60.87 million a year ago. Revenue increased by 15% to RM399.33 from RM346.94 million.
The banking industry is expected to see tougher environment in the near term given the global economic headwinds.
OSK Research, for one, does not expect a meltdown in asset quality or liquidity, but holds the view that earnings growth momentum has slowed significantly, as reflected in the industry’s paltry pre-provision operating profit growth of 1.3% in the first nine months of the year.
“As growth is expected to moderate even more in 2012, we believe that consensus’ double digit earnings growth projection for 2012 may be a little stretched,” it said in its recent note.
It noted that valuations may not be excessive compared with the sector’s near record-high return on equity (ROE) of 15.8% currently.
It said the upcoming quarter’s earnings underperformance and downgrades may be the catalysts for a further de-rating in sector valuations.
OSK’s buys include Malayan Banking Group Bhd (fair value RM9.60), RHB Capital Bhd (RM9.90), Hong Leong Bank Bhd (RM12.15) and AFG (RM3.80).
It is neutral on CIMB Group Holdings Bhd, with a fair value of RM7.62, Public Bank Bhd (RM14) and AMMB Holdings Bhd (RM6.95).
Analysts said the latest guidelines introduced by Bank Negara Malaysia to promote more prudent lending will not hinder bank growth. The new guidelines include taking due consideration of borrowers’ repayment capability based on their net pay rather than gross pay.
This article appeared in The Edge Financial Daily, November 24, 2011.
