OCBC

OCBC: According to sources, valuations for the Wing Hang bank is 2.4x FY13 P/B on an ex-cash basis. On an all in basis, valuations are at 1.94x P/B. The HK$1.62 final DPS was so that the Fung family does not “lose face”, as well as to entice minority shareholders to accept the deal. Maybank KE highlights that the ex-cash P/B of 2.4x is higher than the recently transacted price of 2.1x P/B for the smaller Chong Hing Bank. The house further points out that OCBC may need to finance its acquisition with more than 50% equity, as: 1) Its transitional Basel 3 CET1 ratio is 14.5% (DBS: 13.7%, UOB: 13.2%) 2) Without substantial equity funding, CET1 ratio will be significantly lower than UOB and DBS. 1100% internally cash-funded purchase would cause OCBC’s CEIT1 to slide 3.7 ppt to 10.8%, creating a risk of being downgraded by credit rating agencies Maybank KE reiterates Hold with TP of HK$9.08.