Last Friday, LPI Capital announced the proposed disposal of its 1.13% stake in PBBANK to comply with the Companies Act. The proposed disposal mandated may be implemented in multiple tranches to the third-party purchaser(s) at a price yet to be determined at the juncture, subject to the approval of LPI's shareholders.

The house added that assuming the disposal is entirely concluded at PBBANK's 14 Mar 2025 closing of RM4.48, total disposal proceeds would amount to RM987m. Presumed special dividends affirmed. Kenanga IB theorised that the proceeds from the eventual disposal could see special dividends at a payout of 80% of the total proceeds, in line with LPI's historical dividend payout. However, the announcement illustrated a proposed special dividend proportion of c.70%, with RM4.55m being allocated for expenses incurred from the proposal and remaining c.29% to be set aside for potential investments.

Though short of expectations, Kenanga said based on the abovementioned hypothetical disposal proceeds, a 70% payout amounts to RM691m in special dividends or RM1.756 per share. This translates to a yield of 13.4% which the house believes is still coveted among investors.

Losing out on a sizeable dividend income from PBBANK with the proposed disposal (FY24: RM46.3m), LPI appears more eager to utilise the remaining c.29% proceeds to increase its portfolio of equity, debt and other investments. Only if the group is unable to seek suitable investments from the disposal, would it consider utilising it for working capital purposes. The move is not likely to trigger any issue from a regulatory ratio standpoint, with LPI's capital adequacy ratio being well-above 130%.

The house said it won't be surprised by this as both LPI and PBBANK expressed strong intent to bolster collaborative efforts and cross-selling, which on its own could translate to cost savings and higher operating efficiency. This would therefore require minimal capital injection

Kenanga maintained its earnings assumptions are already absent dividend income from PBBANK and synergistic gains from the merger. Even without, ROEs are still expected to linger at 15%-16% with yields of above 6%.

The house maintains its OUTPERFORM call and TP of RM16.00. The TP is based on an unchanged 2.6x FY26F PBV. This represents a 25% premium against the industry average of 2.1x which it believes is fair given: better net margins of 18%-20% (vs peer's 11%), and higher dividend returns of 6%-7% (vs peer's 4%-5%).

LPI's premium valuation may also be supported by its long-term viability from its affiliation with Public Bank with the pending acquisition further solidifying synergies. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us