The proposed acqusition for the collectively 44.2% stake at RM1.72b or RM9.80/share of LPI Capital Berhad by Public Bank Berhad (PBBank) entails a valuation of 1.7x FY23 PBV, a discount from its recent closing valuation of 2.3x PBV and our applied 2.6x PBV for LPI.

Given the steep discount, analysts do not believe the Management Buyout to minority shareholders will be accepted. Otherwise, the total cash consideration for the entire 100%-stake would amount to RM3.89b. This proposal will require PBBANK's shareholder's appoval which is viewed as highly likely to be accepted on the steep 25% discount, and an thus EPS accretive deal. Based on LPI's FY23 earnings of RM313.4m, it looks to accrete additional earnings to PBBANK by c.4%. PBBANK has stated that it intends to keep LPI's listing status.

According to PBBANK, the impact to the group's CET-1 ratio post acquisition is -20 bps (2QFY24: 14.5% after dividends) and
hence is not expected to affect the group's ability to pay dividends, being well above the group's aspired minimum of 13.0%, of
which they intend to gradually improve their payout to be closer to 60%.

Building a stronger insurance unit. Prior to the proposed acquisition, LPI still benefitted as an affliate to PBBANK via their
mutual parent holding company, The Estate, whereby c.25% of LPI's business is said to be direct referrals from PBBANK.
Through the proposed acquisition, LPI is expected to be able to more directly tap into PBBANK's ecosystem via sharing of
branch networks and sales personnel to promote its general insurance products.

Meanwhile, the acquisition would enable PBBANK to more immediately serve a full suit of financial products towards a "Universal Banking Model". LPI is presently positioned 7th amongst Malaysia's general insurers in terms of gross direct premium. Amid the synergistic gains expected from the above, we expect LPI to benefit more from the merger into the PBBANK group, as it now has a strong financial backstop against any unforeseen and material operating risks to itself. In regards to equity, LPI's 2QFY24 reported at RM2.24b while PBBANK's stood at RM56.3b.

Grandfather Rule overhang addressed. The Estate's stance to dispose of its 23.4% stake in PBBANK to 10.0% over five
years via a restricted offer for sale (ROFS). More details are expected to emerge in the future on the ROFS, including allocation
methodology for the portion of shares distributed to employees, directors and eligible shareholders of the group at a discount.

All told, the ROFS provides resolution pathyway vis-à-vis the rule that no individual share hold more than 10% of a bank per the Financial Services Act, which was grandfathered to the late founder, but had lacked clarity since his passing. The move will
unlock an overhang of 2.60b PBBANK shares (RM11.89b based on a last price of RM4.57). While this translates to an average
disposal of 40.0m PBBANK shares per month over sixty months, it may not be a major concern to existing market participation
as analysts at Kenanga Investment Bank gather that the monthly average traded volume for PBBANK shares tracks at c.310m shares over the last five years.

Between the other Malaysian banks, principal shareholders which own more than 10% stake in both AMBANK and HLBANK also enjoy the Grandfathering Rule given their shares were accumulated before the FSA came into being; their respective principal shareholders controlling 11.83% and 64.51% in total shares, have also enjoyed exemption from the shareholding threshold of 10% under the grandfather rules. While analysyys do not believe they would necessarily follow PBBANK's precedent in managing its shareholdings,they could establish that financial institutions do uphold regulations as required

Kenanga is maintaining its OUTPERFORM call and TP of RM5.10 for PBBANK, the bank remains as one of 4QCY24 Top Picks and
continue to like the bank for its leading asset quality position which we believe will be well sought after during high loans growth periods as a means to minimise exposure to asset quality leakages.

As For LPI the target call is OUTPERFORM and TP of RM15.00 which represents a 25% premium based on better net margins of 17% (vs peer's 11%), and (ii) higher dividend returns of 6%-7% (vs peer's 4%-5%).

The house however does recommend for minority shareholders to REJECT THE OFFER on the RM9.80 MGO by PBBANK