+ WHB acquisition deal priced at S$6.3bn or 1.77x Dec 13 BV which is below market expectations; EPS and ROE expected to be accretive by 2017
+ Funding plans have yet to be disclosed; we have assumed an 80% equity raising to keep CET1 (fully loaded) close to current levels; EPS and ROE could dilute by 7% and 1.1ppts respectively
+ Share price should remain neutral in the near term, pending funding plan disclosure; we believe this acquisition would be long-term positive for OCBC
+ Maintain Buy; S$12.40
Price tag of S$6.3bn/1.77x BV lower than expected; deal should be neutral to share price in the near term. At HK$125 per share, the deal was closed at 1.6% above the last closing price of Wing Hang Bank (WHB) and a premium of 67% to the 90-day average price (as at 16 Sep 2013). As OCBC completes the deal prior to WHB’s ex-rights date (5 May), OCBC will compensate WHB’s shareholders by adding dividends (interim and final) of HK$2.08 per share to the selling price, which essentially bumps up valuations to 1.8x BV. The deal is subject to MAS and HKMA regulatory approvals, among others. HKMA took 2½ months to approve the Chong Hing Bank deal. We can assume that regulatory approvals should be obtained by
Jun 2014. OCBC expects the offer to close by August 2014.
Funding plan depends on VGO take-up. OCBC has made a pre-conditional voluntary general offer (VGO) to acquire the entire issued share capital of WHB. Funding plans for the deal will be announced at a later date as OCBC has stated that it will depend on the acceptance level of the VGO. Assuming a full take-up, OCBC will proceed to delist WHB from HKEX. We have assumed an 80% equity raising (based on 100% VGO take-up) to keep OCBC’s CET1 close to current levels (2014 CET1: 10.9%) which is still below peers. Assuming a 20% discount applied to the rights issue, EPS and ROE would dilute by 7% and 1.1ppts respectively. OCBC expects the acquisition to be EPS and ROE accretive by 2017.
Maintain Buy; TP at S$12.40; long-term positive. Share price is expected to remain neutral in the near term, given the lower-than-expected offer price OCBC made for WHB. Market will await OCBC’s funding plans for the deal. We believe this acquisition will benefit OCBC in the longer term, as part of its regionalisation agenda.
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