PP 7767/09/2010(025354)

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

Sector Upda te
2 April 2010
MARKET DATELINE

Banking Recom : Overweight

(Maintained)
HL Bank Ups Offer For EON Cap

Table 1: Sector Valuations

PER (x) CAGR P/BV (x) ROE (%)
Price FV Rec CY08 CY09 CY10 (%) CY08 CY09 CY10 FY08 FY09 FY10
Public Bank – L 11.70 13.12 OP 15.2 15.6 13.7 10.6 4.1 3.6 3.1 27.3 24.5 24.2
Maybank 7.47 8.96 OP 17.0 16.4 13.3 21.7 2.2 1.8 1.9 9.9 12.1 12.8
CIMB Grp 14.38 16.24 OP 26.4 18.3 15.3 18.1 3.0 2.5 2.4 11.9 15.0 16.1
AMMB 4.99 6.13 OP 15.8 13.2 11.1 13.7 1.6 1.4 1.2 11.6 11.8 12.1
EON Cap 7.05 8.07 OP 36.5 14.3 13.1 11.2 1.5 1.4 1.3 4.2 10.1 10.0
Affin Holdings 2.91 3.03 MP 14.3 11.3 10.2 8.4 1.0 0.9 0.9 6.8 8.1 8.6
Hong Leong 8.67 9.05 MP 16.6 15.2 15.3 1.5 2.5 2.3 2.1 16.7 14.8 13.4
AFG 2.88 3.27 OP 16.7 17.7 13.2 21.5 1.6 1.5 1.4 16.8 8.6 9.1
RHB Cap* 5.66 NR NR 11.6 10.1 9.7 7.8 1.6 1.4 1.3 13.3 12.3 13.0
Sector Wt Avg 17.3 15.1 12.7 2.3 2.0 1.8 *I/B/E/S
Estimates

♦ HL Bank ups offer to RM5.1bn ... HL Bank (MP, FV=RM9.05) has upped Chart 1. Industry NPL
its cash offer to acquire EON Cap’s (OP, FV=RM8.07) assets and liabilities 69,000.0
(RMm) Gross NPL(LHS) Gross NPLratio (RHS) Net NPLratio (RHS) (%)
17.0

to RM5,060.4m from RM4,921.8m (Offer). The revised Offer translates into 64,000.0 15.0

RM7.30/EON Cap share (from RM7.10/share) or 1.42x FY09 BV/share (1.39x 59,000.0 13.0

previously). According to press reports, the sweetened deal was made as EON 54,000.0
11.0

Cap’s independent directors were of the view that they could not present the 49,000.0
9.0

same offer to shareholders. The Board of EON Cap has until 5 Apr to reply to 44,000.0
7.0

the Offer. 39,000.0

5.0

♦
34,000.0

… but conditions tightened? We highlight two differences between the 29,000.0 3.0

terms of yesterday’s offer and that made on 30 Mar. Firstly, the condition on 24,000.0 1.0

distributions has been revised such that any dividend declared or paid from
Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09

the date of the revised Offer shall be deducted from the Offer price and this, Chart 2. Industry LLC
we believe, would include EON Cap’s FY09 final TE DPS of 10 sen. In contrast, 95
(%)

this DPS would not have been deducted from the previous offer price. 90

85

Secondly, in addition to the condition that HL Bank has the right to withdraw 80

the Offer if EON Cap enters into M&A talks with other parties, the revised 75

Offer now includes an additional exclusivity clause whereby EON Cap can only
70

65

negotiate solely with HL Bank. This clause, we believe, is to avoid 60

unwelcomed distractions from potential “noises” such as competing bids. 55

50

♦ Impact to HL Bank. In our view, the revised Offer price is still a good deal 45

40

for HL Bank, especially when viewed relative to the full takeover transaction 35

P/BV multiple of above 2x during the second round of consolidations. As

Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10

highlighted previously (see HL Bank report dated 31 Mar), we estimate the

deal would be EPS and ROE enhancing. From a qualitative perspective, the
acquisition would help lift the bank’s market share in the HP and SME
segments as well as propel the bank to become the fourth largest bank in
Malaysia in terms of total assets (from sixth position currently). This could
help ensure HL Bank’s long-term status as an anchor bank.
♦ Impact to EON Cap. As for EON Cap, we are maintaining our view that the
takeout offer is too low given improving fundamentals and does not recognise
the Group’s hidden value such as unabsorbed tax losses at MIMB and Section
108 tax credits (available to frank dividends) at EON Bank. In addition, after
years of low single-digit expansion, we expect loan growth to accelerate post
transformation, on the back of a doubling in loan approvals and double-digit
growth in undrawn commitments.
♦ Likely to boil down to EON Cap’s shareholders. As with the previous
offer, we believe EON Cap’s “new board” is likely to accept the offer and table David Chong, CFA
it to the shareholders. The smooth appointment of the new directors also (603) 9280 2186
suggests that the shareholders would prefer to deliberate on any offers, david.chong@rhb.com.my
although approval is still uncertain.

Please read important disclosures at the end of this report. Page 1 of 2

A comprehensive range of market research reports by award-winning economists and analysts are exclusively
available for download from www.rhbinvest.com
 2 April 2010

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank
(previously known as RHB Sakura Merchant Bankers). It is for distribution only under such circumstances as may be permitted by applicable law. The opinions
and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or be
contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives
of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or
strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts
any liability for any loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing
investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB
Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity
securities or loans of any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other
services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or
more over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take
on higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended
securities, subject to the duties of confidentiality, will be made available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for
the actions of third parties in this respect.

Page 2 of 2

A comprehensive range of market research reports by award-winning economists and analysts are exclusively
available for download from www.rhbinvest.com