THE demise of Public Bank Bhd’s (PBB) founder Tan Sri Teh Hong Piow, 92, yesterday will not have any long-term impact since he left the company in the hands of a strong management team and it is business as usual for the bank, analysts said.
“We do not expect this to materially affect the outlook of PBB as it is backed by a strong and experienced management team, though Tan Sri Teh’s demise would trigger a major change in the shareholding structure of PBB,” said a source from CIMB.
The late Teh was the largest shareholder of PBB with a 23.41% stake (or 4.54 bil shares) as of Mar 14, 2022.
Based on the closing price of RM4.40 for PBB on Dec 12, Teh’s stake carries a total value of RM20 bil.
His demise would lead to a material change in the shareholding structure of PBB with the potential emergence of new major shareholders.
Nevertheless, no one knows who will hold Teh’s shares, but CIMB is of the view there might be future mergers and acquisition (M&A) plans at the bank.
“However, we do not have any knowledge of the arrangement by the late Tan Sri Teh for these shares,” it said.
“The possibility of M&As for PBB in the future depends on the plans by the person(s) who will inherit these stakes.”
However, a source from Maybank noted that any mergers and acquisitions (M&A) being considered could prove to be a costly exercise for any domestic acquirer.
“We would expect the shareholding to go into a family trust, at this stage,” it remarked.
According to Section 92 of Financial Services Act, individuals are prohibited from owning more than 10% stake in a financial institution unless they already held the stake before June 30, 2013.
As such, the individual(s) who will inherit Tan Sri Teh’s stake in PBB cannot hold more than 10% stake per person.
On the other hand, none of the analysts who covered the impact of his demise on the bank’s operations believed that his passing will have a material effect on the outlook and strategic direction of the institution.
They said the founder has left behind a solid management team that has taken over the bank since the founder resigned as CEO in 2002.
The management team includes Tan Sri Dr Tay Ah Lek, 79 (managing director/CEO), Datuk Chang Kat Kiam, 67 (deputy CEO) and Chang Siew Yen, 53 (senior COO).
The two senior COOs are Chang and Datuk Sulaiman Abd Manap.
“In fact, PBB initiated its succession plan years ago when Teh relinquished his CEO position and was redesignated non-executive chairman of PBB on Jul 1, 2002,” said the analysts.
Maybank today acknowledged that Teh’s demise marks the departure of an icon in the banking industry but it maintains a hold call on the bank.
“We maintain a hold call with an unchanged TP of MYR5.00, which pegs FY23E valuation to a PBV of 1.9x for an ROE of 13%. We prefer HL Bank (HLBK MK; BUY; CP: MYR20.58; TP: MYR24.10) for exposure to the retail banking space,” it noted.
Teh founded the bank at the age of 35, back in 1965 and retired as non-executive chairman of the bank on Dec 31, 2018 and was conferred the title of Chairman Emeritus and adviser of Public Bank on Jan 1, 2019.
Public Bank trades at a sector-leading historical PBV of 1.7x, though this is justified in terms of its ROE (FY22E: 12%) which is also the highest in the industry, said Maybank.
CIMB further remarked the passing of Teh could have a near-term knee-jerk effect on the share price of PBB but foresee limited impact from this on the near-term earnings outlook of the bank.
“As such, we reiterate our Add call on the stock premised on the potential re-rating catalyst from it having one of the lowest credit costs among its peers should the economic environment deteriorate in 2023 and from potential write-back in management overlay,” it said.
“We maintain our FY22-24F EPS forecasts and DDM-based target price of RM5.20 for PBB.” – Dec 13, 2022
Main pic credit: The Edge Markets
