PP 7767/09/2010(025354)

Corporate Highlights
Sector Upda te

RHB Research Institute Sdn Bhd A member of the RHB Banking Group
Company No: 233327 -M


2 April 2010 Recom : Overweight (Maintained)

HL Bank Ups Offer For EON Cap
PER (x) Price FV 13.12 8.96 16.24 6.13 8.07 3.03 9.05 3.27 NR Rec OP OP OP OP OP MP MP OP NR CY08 15.2 17.0 26.4 15.8 36.5 14.3 16.6 16.7 11.6 17.3 CY09 15.6 16.4 18.3 13.2 14.3 11.3 15.2 17.7 10.1 15.1 CY10 13.7 13.3 15.3 11.1 13.1 10.2 15.3 13.2 9.7 12.7 CAGR (%) 10.6 21.7 18.1 13.7 11.2 8.4 1.5 21.5 7.8

Table 1: Sector Valuations P/BV (x) CY08 4.1 2.2 3.0 1.6 1.5 1.0 2.5 1.6 1.6 2.3 CY09 3.6 1.8 2.5 1.4 1.4 0.9 2.3 1.5 1.4 2.0 CY10 3.1 1.9 2.4 1.2 1.3 0.9 2.1 1.4 1.3 1.8 FY08 27.3 9.9 11.9 11.6 4.2 6.8 16.7 16.8 13.3 ROE (%) FY09 24.5 12.1 15.0 11.8 10.1 8.1 14.8 8.6 12.3 FY10 24.2 12.8 16.1 12.1 10.0 8.6 13.4 9.1 13.0 *I/B/E/S Estimates

Public Bank – L Maybank CIMB Grp AMMB EON Cap Affin Holdings Hong Leong AFG RHB Cap* Sector Wt Avg

11.70 7.47 14.38 4.99 7.05 2.91 8.67 2.88 5.66

HL Bank ups offer to RM5.1bn ... HL Bank (MP, FV=RM9.05) has upped its cash offer to acquire EON Cap’s (OP, FV=RM8.07) assets and liabilities to RM5,060.4m from RM4,921.8m (Offer). The revised Offer translates into RM7.30/EON Cap share (from RM7.10/share) or 1.42x FY09 BV/share (1.39x previously). According to press reports, the sweetened deal was made as EON Cap’s independent directors were of the view that they could not present the same offer to shareholders. The Board of EON Cap has until 5 Apr to reply to the Offer. … but conditions tightened? We highlight two differences between the terms of yesterday’s offer and that made on 30 Mar. Firstly, the condition on distributions has been revised such that any dividend declared or paid from the date of the revised Offer shall be deducted from the Offer price and this, we believe, would include EON Cap’s FY09 final TE DPS of 10 sen. In contrast, this DPS would not have been deducted from the previous offer price. Secondly, in addition to the condition that HL Bank has the right to withdraw the Offer if EON Cap enters into M&A talks with other parties, the revised Offer now includes an additional exclusivity clause whereby EON Cap can only negotiate solely with HL Bank. This clause, we believe, is to avoid unwelcomed distractions from potential “noises” such as competing bids. Impact to HL Bank. In our view, the revised Offer price is still a good deal for HL Bank, especially when viewed relative to the full takeover transaction P/BV multiple of above 2x during the second round of consolidations. As highlighted previously (see HL Bank report dated 31 Mar), we estimate the deal would be EPS and ROE enhancing. From a qualitative perspective, the acquisition would help lift the bank’s market share in the HP and SME segments as well as propel the bank to become the fourth largest bank in Malaysia in terms of total assets (from sixth position currently). This could help ensure HL Bank’s long-term status as an anchor bank. Impact to EON Cap. As for EON Cap, we are maintaining our view that the takeout offer is too low given improving fundamentals and does not recognise the Group’s hidden value such as unabsorbed tax losses at MIMB and Section 108 tax credits (available to frank dividends) at EON Bank. In addition, after years of low single-digit expansion, we expect loan growth to accelerate post transformation, on the back of a doubling in loan approvals and double-digit growth in undrawn commitments. Likely to boil down to EON Cap’s shareholders. As with the previous offer, we believe EON Cap’s “new board” is likely to accept the offer and table it to the shareholders. The smooth appointment of the new directors also suggests that the shareholders would prefer to deliberate on any offers, although approval is still uncertain.

Chart 1. Industry NPL
(RMm ) 69,000.0 64,000.0 59,000.0 54,000.0 49,000.0 9.0 44,000.0 7.0 39,000.0 34,000.0 29,000.0 24,000.0 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 5.0 G NPL(LHS ross ) G NPLratio (RHS) ross Net NPLratio (RHS ) (% ) 1 7.0

1 5.0

1 3.0

1.0 1


1 .0

Chart 2. Industry LLC
95 90 85 80 75 70 65 60 55 50 45 40 35 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-1 0


David Chong, CFA (603) 9280 2186

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2 April 2010

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