Maybank's shares took a dive today closing at RM7.70 (down 30 sen) with heavy volume. The share was suspended for 2 days pending the announcement of a proposed bank acquisition in Pakistan. To date, with a time span of 2 months, Maybank, the usually prudent bank or now known as the "lousy negotiator", has made the following proposed acquisition in a highly risky but highly lucrative markets:1) An Binh Bank(Vietnam) - 15% stake -USD135m
3) MCB Ltd(Pakistan)-15% + 5%(1 year latter)- USD686b-5.4X Book Value-payment via part internal cash and part external financing
(note: recent Pakistan banking deals range from 4X-5.6X)
Total proposed acquisition on the above is USD3.521b(over RM11b).
A liitle bit about this MCB Ltd-
Largest in market capitalisation (USD4.1b)
4th Largest in Assets (USD6.7b)
Highly profitable with ROE more than 30%
Highest net interest margin among Pakistan banks of 8%
With such a high price investment made by Maybank, what would the brokers in town think? Below are some comments made and the target price set.
Positive Feedback
RHB (TP 10.70)- calculation based on 15 x CY08eps
CIMB (TP RM9.80)- calculation based on DDM Valuation with 20% discount with assumptions cost of equity 11.3%, dividend growth rates 7.7% - 6%
Kenanga(TP RM10.10)- 2.3X y/e08 P/BV
Negative Feedback
Alliance(TP RM7.50)-2 steps DDM with a terminal ROE of 18% and cost of equity of 12.2%. Expected improvement in eps FY09(0.4%) and FY10(0.8%).
CITI (TP RM7.60)
Merrill Lynch (TP RM7.60)
AmResearch (TP RM7.30)-3X adjusted NTA of RM2.43 (due to large goodwill arising on acquisition, NTA was reduced from RM4.51 to RM2.43)
Morgan Stanley (TP RM8.00)
I believe Maybank is paying a hefty price for these acquisitions which may be very risky and with long payback period. Although Maybank has said that in the longer term, the bank has targeted its Tier-1 Capital ratio to be about 7-8% and aims for a total capital ratio of 11-12%, the above acquisitions of USD3.5b would definitely put the ratios in jeopardy with a heavy strain on the Balance Sheet. Further, the previous target dividend payout ratio of 60% for the year end June 08 may be missed due to the acquisitions. Maybank will really need to do well to justify its purchases especially in Indonesia as the results from this controlling stake is crucial for Maybank's earnings growth while the earnings contributions from Pakistan and Vietnam could be small as it can only be equity accounted. Although Maybank's share price is closed to the pessimistic brokers' TP, except for value investors with a longer term horizon, I believe some investors may not be too eager to jump in just yet pending the bank's capital raising plan to be released by June 30. However, it should be noted that Maybank price is very cheap now (egs, P/E of 11.6X based on financial year 09 estimated earnings (below 5 years average of 15X) and P/B value of 1.9X on estimated year end 08 (below 5 years average of 2.5X). I am asking myself whether Maybank's management are seeing the acquisitions' potential in the same light with the general investing public. Is Maybank so desperate to expand overseas, especially in the politically risky markets, that it wants to buy anything that is offered on the shelf? Chartwise, Maybank has been on a down trend since beginning of this year when it hits RM10.60. The weekly stochastics/MACD are all in down trend mode and the RSI is at an oversold position of 33. The support is seen at RM7.50 and RM7.00 while resistance is RM8.50.
* Today, Public Bank Bhd has taken over from Maybank as the largest bank in terms of market capitalisation in Bursa Malaysia. Its market capitalisation is now RM40.9b while Maybank's is RM37.8b. However, Maybank is still the largest financial group in terms of assets and revenue.(Bloomberg)
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