OCBC

OCBC: Share price has fallen 8.6% since 3 Jan when the news about their bid for Wing Hang Bank broke out, outpacing that of DBS (-4.4%) and UOB (-6.3%), due mainly to uncertainty on pricing and potential share dilution. Maybank-KE estimates that OCBC may need to finance its acquisition with more than 50% equity. Without it, OCBC's common equity tier 1 (CET1) ratio of 14.3% will be significantly lower than that of UOB (12.9%) and DBS (13.3%), putting it at risk of being downgraded by the credit rating agencies. Current valuation of 1.2x FY14 P/B is below its three-year historical average of 1.5x. However, share price weakness is likely to persist until negotiations for the deal have been completed. The exclusive negotiation period between the two banks will expire on 3 Mar. Latest broker recommendations: Maybank-KE maintains Hold but lowers TP to $9.16 (from $11.30)