FY13F PE (x): 12.6
FY14F PE (x): 11.8
OCBC has entered into an exclusive agreement with the substantial shareholders of
Wing Hang Bank (WHB) on 31 Dec 13 to finalise the terms for a possible transaction
until 31 Jan 14. There is no binding agreement at this stage and discussions between
OCBC and the substantial shareholders of WHB are ongoing.
Our views. We agree that OCBC has slightly overpaid for the planned acquisition of
WHB. It would also be tough to achieve revenue or cost synergies envisioned by
management. However, we recognise it is difficult to find an acquisition target, especially
one that provides management control. It is possible to fund the acquisition fully through
debt if capital is replenished over time through its scrip dividend scheme.
Maintain BUY. Our target price of S$12.45 is based on 1.71x P/B, derived from Gordon
Growth Model (ROE: 12.0%, required return: 7.8% and growth: 2.0%). We will lower our
target price accordingly if OCBC concludes a binding agreement to acquire WHB.
OCBC entered into an exclusive agreement with the substantial shareholders of WHB on Dec 31, 2013, to finalise the terms for a possible transaction until Jan 31, 2014.
There is no binding agreement at this stage, and discussions between OCBC and the substantial shareholders of WHB are ongoing.
Financial impact from the planned acquisition of WHB hinges on how the acquisition is funded. We performed sensitivity analysis based on various funding mix between debt and equity ...
Core Equity Tier-1 (CET-1) CAR (capital adequacy ration) disclosed by OCBC is based on transitional Basel III framework. Basel III will be fully implemented on Jan 1, 2019, or in about five years.
The acquisition of WHB has to be 60 per cent funded by equity if OCBC intends to maintain fully loaded CET-1 CAR at above 9 per cent. The transaction has a positive impact on EPS if 80 per cent to 100 per cent funded by debt.
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