OCBC bids for Wing Hang Bank

Wing Hang valued at SGD6.7b, says analyst.

According to OSK, OCBC is said to have placed a bid for Wing Hang Bank (Wing Hang), Hong Kong’s second largest family-owned bank. Reportedly, OCBC’s bid values Wing Hang at less than 2x P/BV. At 2x P/BV, Wing Hang would be valued at SGD6.7bn (USD5.3bn), based on its 30 June 2013 numbers, or around HKD133/share (13% premium to last closing price).

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Wing Hang is one of four remaining family-owned banks in Hong Kong. Its major shareholders are the Fung family and BNY International Financing Corporation, who collectively hold a 45% equity stake.

Wing Hang’s banking business spans across Hong Kong, China and Macau, served via over 70 branches. While pricing details are lacking, we think a price of 2x P/BV for Wing Hang is not particularly attractive, especially when compared to the Singapore banks (1.1-1.3x FY14 P/BV but offer better projected ROEs of 11-12%).

Possibly, the recent Chong Hing Bank (Chong Hing) deal could have set a benchmark for M&A transactions with respect to family-owned banks in Hong Kong. Recall that in Oct 2013, Yue Xiu Group had offered to pay 2.1x P/BV to acquire a 75% equity stake in Chong Hing.

If compared to the Chong Hing transaction, a 2x P/BV for Wing Hang would appear more palatable given: 1) size. Wing Hang is about 2.5x larger than Chong Hing in terms of total assets; and 2) profitability. Annualised 1H2013 ROE and ROA for Chong Hing was 7.5% and 0.7% respectively.

Our FV of SGD10.90 is based on target P/BV multiple of 1.45x. This is at a slight discount to the 5-year average P/BV of 1.5x to take into account, among others, lower projected ROEs of around 11% as compared to 11-12% ROEs in the past.