OCBC

OCBC: CIMB downgrade to Hold with $10.67 TP. The house highlights that if Bloomberg reports of OCBC being close to an agreement to acquire Wing Hang Bank at 1.9x P/BV are correct, think that OCBC will come under further selling pressure ahead. At 1.9x P/BV, reckon that it will be paying a control premium of 55-60% above Wing Hang’s fair value. Also, its ability to settle for an all-cash deal and avoid any share swap or share issuance will dissipate i.e. there will be dilution. With a competitive HK mortgage market and a peaking HK property market, can only see OCBC coming through the deal on a wing and a prayer. Don’t hang on to the shares. Downgrade it from Add to Hold with de-rating catalysts expected from EPS dilution after the deal.