Maybank: Tiger on the prowl

Reuters: Shares in Malaysia's biggest lender, Malayan Banking Bhd (Maybank), tumbled to a 3-1/2-year low on Thursday after it offered to buy Bank Internasional Indonesia (BII) for US$2.7 billion (RM8.64 billion). Maybank surprised investors on Wednesday by saying it would pay US$1.5 billion for 56% of Indonesia's sixth-largest lender -- a 23% premium to Tuesday's share price -- and would offer to buy out the bank's minority shareholders for US$1.2 billion.

"The price tag... was more than 50% higher than we assumed for a mediocre franchise," Citigroup said in a note, downgrading Maybank to a sell from a buy. It slashed Maybank's target price to RM8.38 a share from RM10.63. Maybank shares fell as much as 11% to RM8 a share in the first few minutes of trade, its lowest level since August 2004. At 0126 GMT, the stock fetched RM8.35.

The offer price represented 4.6 times book value, expensive even when compared with Chinese banks that trade at between 3.3 and 5.4 times book value, according to Reuters data.

My Take: Only last week, Maybank(MBB) had announced it would acquire a 15% stake in Vietnam's An Binh Bank for RM430 mil. Here is what I know about the BII deal based on available reports and newspapers:

Sellers, Sorak Financial (75% owned by Fullerton Financial(a wholly owned subsidiary of Singapore's Temasek), 25% owned by Kookmin Bank) made 5 fold on this 2001 investment!!

Temasek also part owns PT Bank Danamon Indonesia, the No 5 Bank in Indonesia by assets.

BII is a commercial bank with US6 bil in assets, 230 branches and 700 ATMs. Owns WOM Finance, Indonesia's 3rd largest finance company.

After acquisition effects on MBB: 1) Increase overseas revenue contribution from 19% to 28% in 2 years , and will boost profit a year latter, 2) Gross loan will be increased from 20% to 30%, 3) purchase does not lift MBB's status as the fourth largest bank in SEA by assets.

Other information: The book value of 4.6X is about double the average valuation of Indonesia's publicly traded banks. The top four banks are trading at 3.9X.

MBB's acquisiton of IBB, which was internally funded, was part of a long term strategic plan to be a regional bank. It realised that the market share in Malaysia is dwindling fast as there were relentless efforts from other Malaysian and overseas banks to grab a piece of the saturated market. By going to selected high growth economies like Indonesia, Thailand, Vietnam, Pakistan etc, MBB hopes to tap on the largely untouched markets which has higher profit margin. Some analysts believed that the high premium was required as 1) not many available and clean banks to be sold in Indonesia, 2) better earnings visibility, 3) lower investment risks, given the current political landscape and economy.

Technically speaking:

MBB's share price touches RM8.00 during the intraday but closes at RM8.40. This is the lowest price in more than 5 years. The bonus adjusted price shows that MBB did not have a good run during 2007. It peaks early 2007 at 11.04 and was on a downtrend mode the whole year then before going up again during early 2008. The share price were on down trend again till now. The RSI is at an oversold 44.77 level but the price needs to stabilised soon before a technical buy call can be made. Need to watch out for the MACD's positive crossover. However, for value investors, MBB's current price is a value buy for the longer term.