MIDF Research positive on MBSB-Asian Finance Bank merger

PETALING JAYA: MIDF Research is positive on MBSB’s proposed merger with Asian Finance Bank Bhd (AFB), but the main stumbling block will be agreeing on pricing.

Given Malaysia’s banking sector has been trading below its five-year historical price-to-book value (PBV) of 1.3 to 1.5 times, the research house said it is fair for MBSB to pay 1.1 to 1.2 times premium of AFB’s nine-month book value of RM500.1 million for FY16, in order to obtain a full-bank licence, which would translate to a price of about RM550 million to RM600 million.

Investors did not cheer much on the emergence of another suitor for MBSB, which has had two other suitors in the last three years. Its shares hit a high of 93.5 sen before ending the day up one sen or 1% to close at 91 sen a share yesterday, with some 16.45 million shares changing hands.

On Wednesday, MBSB received approval from Bank Negara to start negotiations with AFB’s Middle Eastern shareholders – namely Qatar Islamic Bank (66.67%), RUSB Investment Bank Inc (16.67%), Tadhamon International Islamic Bank (10%) and Financial Assets Bahrain WLL (6.67%), for the proposed merger.

MIDF Research said it has little doubt that the proposed merger will be profitable and the prospect of becoming a full-fledged Islamic bank.

While the expansion of profit and assets are likely to be immaterial, it said the proposed merger will benefit MBSB in another way.

“The full bank licence will allow MBSB to tap into new financial services segments which it cannot offer at the moment (such as trade facilities, collecting CASA [current account savings account] deposits and offering other interbank instruments) to expand its business,” it noted.

MIDF Research is maintaining its earnings forecast for MBSB at this juncture until further clarification on the proposed merger. It has also reaffirmed a “buy” call on MBSB with an unchanged target price of RM1.08.