Public Bank in good hands, a change in shareholdings structure in the offing

KUALA LUMPUR 14 Dec - It is a known fact that the late Tan Sri Dr Teh Hong Piow is synonymous with Public Bank Berhad.

Mention the bank's name, and an image of the affable founder will come to mind.

Thus, it came as no surprise that Public Bank was rocked to its foundations on Monday with the demise of the legendary banker.

Shares of the country's third largest bank dived some 50 sen to RM4.39 before recovering slightly yesterday to RM4.40.

However, the bank's fundamentals remain solid thanks to the succession plan already put in place by Teh ever since he resigned as chief executive of the bank in 2002.

Bank in good hands thanks to its succession plan

Public Bank has always been in good hands ever since its founder set in motion it's succession plan.

A succession plan is ever so important as it gives the assurance to customers' that their savings worth billions of ringgit are safe and secure.

Positive sentiment is the be all and end all of a banking group and having a personality cult-like leader like Teh at the top helps.

Teh realized that from the first day he set up the bank in 1965.

Teh does not want the bank to be associated with personalities but rather by its efficiency and good banking practises.

Bank management team solid as a rock

Although the bank's shares dipped slightly, it was just a knee jerk reaction as Teh's passing hardly made a dent on Public Bank due to its solid management team.

They include 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 or chief operating officers are Chang and Datuk Sulaiman Abdul Manap.

"So far, there has been no huge withdrawals of unit trust funds by Public Mutual customers.

They still have faith in Public Bank," Public Mutual sales agent Ding Yung Li told DagangNews.com.

Who will take over Teh's shares?

As founder, Teh owns a huge chunk of Public Bank's shares.

It is reported that Teh owns 23.41 percent of the bank or 4.54 billion shares worth some RM20 billion based on yesterday's closing price of RM4.40.

The question now is - who will assume control over these shares?

CGS-CIMB Securities said that in all probability, these shares will be assumed by Teh's family members either in cash or trust.

However, each family member or associates or individuals are not allowed to own more than 10 percent each as stipulated under section 92 of the Financial Services Act enforced in 2013.

Another round of merger and acquisition?

Now that Teh's shares are up in the air, the scenario also opens the possibility of a new round of merger and acquisition should the shares were to be sold in the open market.

CGS-CIMB said Teh's demise would trigger a major change in shareholding structure of Public Bank.

However, a merger and acquisition activity are a costly affair and it might not even materialise.

Growth prospects still intact

Despite the loss of its patriarch, CGS-CIMB Securities has maintained its “add” rating on Public Bank Bhd at RM4.41 with a target price of RM5.20.

"While the demise of the bank’s founder and chairman emeritus Tan Sri Dr Teh Hong Piow is a loss to the bank, it does not expect this to materially affect the outlook of the bank as it is backed by a strong management team.

“His demise would lead to a material change in the shareholding structure of Public Bank with the potential emergence of new major shareholders.

“However, we do not have any knowledge on the arrangement by the late Teh for these shares. 

The possibility of M&As for PBB in the future depends on the plans by the person(s) who will inherit these stakes, in our view,” it said.

“As such, we reiterate our 'add' call on the stock premised on the potential rerating catalyst from it having one of the lowest credit costs among its peers should the economic environment deteriorate in 2023.

Meanwhile, Maybank Securities 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 target price of MYR5 which pegs financial year 2023 (estimate) valuation to a return on equity of 13 percent. 

"We prefer Hong Leong Bank due to its exposure to the retail banking space,” Maybank said in its research note to investors.

Teh's legacy lives on

Teh founded the bank at the age of 35 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.
 

His loss has been described by Prime Minister Datuk Seri Anwar Ibrahim as a big void in the banking industry.

Will his legacy live on? Only time will tell. – DagangNews.com