News

• Malayan Banking Group (Maybank) announced that it has entered into a conditional share purchase agreement with Reliance Capital Management (RCM) for the proposed disposal of Maybank Indonesia’s entire 68.55% stake in PT Wahana Ottomitra Multiartha (WOM Finance) to PT RCM for an indicative price of IDR673.77bn (RM229.08m).
• At the same time, Maybank reiterated that WOM Finance will continue to be a significant business partner to Maybank in providing the financing of motorclye in Indonesia.

Comment

• We are positive on the development as this will enable Maybank to maximize the use of capital in its subsidiary though contribution from this divestment is minimal. We also opine that this will further streamline its Indonesia’s operation that has been hit by asset quality issue for several years.
• To note, Maybank’s involvement in WOM Finance started in 2004 when BII acquired 43% stake for IDR425bn. Over time, Maybank continued to accumulate the share in WOM Finance from 2004 until 2015 and ended up with 68.55% stake due to the latter’s favourable performance and market share position in motorcycle financing. Total investment cost in WOM Finance amounted to IDR781bn.
• Based on selling price of IDR673.77bn, Maybank is expected to incur a loss on the divestment exercise. However, taking into consideration the book value difference, we estimate that Maybank will gain circa IDR60bn/RM2m, a marginal gain to our FY2017 earnings forecast.
• We also expect Maybank to undertake more divestment especially subsidiaries/associates in the segment of finance and asset management/trustee as Maybank is pursuing its focus on corporate and consumer banking and to maximize its capital requirement moving forward.

Risks

• Unexpected jump in impaired loans, lower than expected loan growth and significant slowdown in capital market.

Forecasts

• Unchanged.

Rating

BUY (↔)

• We like Maybank for its exposure in Asean market that negates the flattish growth in domestic market. Subsequent recovery in its asset quality underpinned by rising global oil and commodity price could provide further rerating to its share price performance.

Valuation

• Our Gordon Growth derived TP of RM8.80 is unchanged (ROE of 9.8% and P/B of 1.3x). Maintain BUY rating on the stock

Source: Hong Leong Investment Bank Research - 13 Jan 2017