KUALA LUMPUR: The offer price of RM9.80 per share by Public Bank Bhd is seen as low, given LPI Capital Bhd's strong earnings growth and the favourable market conditions, said CIMB Securities Sdn Bhd.
The firm said the offer values LPI at 1.64 times the financial year 2025 (FY25) price to book value ratio (p/bv), which represents a 28.7 per cent discount to its 10-year average of 2.3 times.
"Our gordon growth model (GGM)-based target price suggests a fair value of RM14.49 per share (2.42 times FY25 implied P/BV), meaning the offer price reflects a 32.4 per cent discount to our fair value and a 24.6 per cent discount to the last traded price of RM13.00.
"Additionally, we believe the cash offer should at least match the P/BV of recent market transactions, such as the disposal of a 2.95 per cent stake in AXA Affin General Insurance by Affin Bank to Generali Asia N.V. in 2022 at 2.1 times P/BV," said CIMB Securities.
The bank-backed research firm said the acquisition is positive for LPI as it provides a valuable opportunity to tap into a wider customer base through Public Bank's extensive network of over 260 branches in Malaysia.
"Moreover, LPI could diversify its portfolio by offering integrated financial products, such as bundling insurance policies with loan products, including fire or motor insurance alongside home and vehicle financing," it said.
CIMB Securities noted that the acquisition is also seen as a strategic move to consolidate a single block of shares, transferring control of LPI from the late Tan Sri Datuk Sri Teh Hong Piow and Consolidated Teh Holdings Sdn Bhd to Public Bank.
"It is understood that Public Bank intends to maintain LPI's listing status. Overall, we recommend that shareholders do not accept the general offer (GO), as the price is not attractive.
"However, we view the transaction as positive for LPI's minority shareholders in the medium to long term, as it will offer cross-selling opportunities and a stronger earnings trajectory, driven by organic growth and synergies with Public Bank's large customer base," it added.
Meanwhile, Hong Leong Investment Bank Bhd (HLIB Research) said it is positively surprised with the price tag of RM9.80 per share, which represents a steep 25 per cent discount to the market price.
HLIB Research said this values LPI at 1.5 times FY25 P/B, lower vs the average merger and acquisition (M&A) P/B for general insurers of 1.9 times.
"However, due to those reasons, we reckon the mandatory general offer (MGO) will not be well received. As such, Public Bank will get to own only 44.2 per cent of LPI," it added.