Monday, June 30, 2014
OCBC: Announced that all the pre-conditions for OCBC to buy Hong Kong's Wing Hang Bank have been satisfied, with the group obtaining regulatory approvals various regulators in Singapore and Hong Kong for the US$4.95b deal. OCBC expects the deal to be concluded by Aug ’15, with CEO Samuel Tsien guiding that the deal is reasonably priced, while further highlighting that Greater China has the potential to become one of OCBC’s top three markets in terms of profit contributions. Tsien added that a major push for OCBC’s acquisition was also to catalyse on China’s drive to internationalise the yuan as a global currency, with Hong Kong being the world’s largest offshore yuan hub with deposits estimated to be at ~Rmb800b. Furthermore, the acquisition of WHB will grant OCBC access to additional currency deposits, especially RMB, HKD and USD deposits, which could be used to fund its expansion and increase the suite of products and services offered. Yet, while a successful deal would enable OCBC to close the gap with larger rival DBS, and enable OCBC to diversify out from its traditional Asean-centric focused business, investors could be saddled with hefty goodwill write-offs should OCBC overpays for Wing Hang, citing a parallel experience to DBS and its Dao Heng Bank acquisition almost a decade ago. As a comfort, OCBC boasts a good track record on its recent acquisitions, as evident in its strategic acquisitions of Great Eastern, Bank NISP of Indonesia and ING’s Asian private bank, all of which have enabled the group to grow its asset size, earnings and enter new areas of growth OCBC currently trades at 1.26x P/B versus DBS’s 1.16x and UOB’s 1.31x. Overall, the street has 8 Buy, 11 Hold and 4 Sell ratings with a consensus TP of $10.55.