Banking - OVERWEIGHT - 29 June 2012

kiasutrader

Publish date: Fri, 29 Jun 2012, 11:48 AM

MBF Holdings Bhd ('MBF') is undertaking a tender process to sell its card and payment services business. MBF Cards has one of the largest networks in the country, with its credit card business having a presence at 33,000 merchants nationwide. A few banks have expressed their interest, including Hong Leong Bank ('HLBANK') and AmBank Group ('AMBANK'). We are mildly positive on this potential acquisition if these banks really made their moves. The ability in capturing market share through this acquisition will enable these banks to grow their fee and interest incomes, leading to top line synergies.

News: MBF Holdings Bhd ('MBF') is undertaking a tender process to sell its card and payment services business. Its chief executive officer, Tan Sri Dr Ninian Mogan Lourdenadin said on Thursday the company was looking for a healthy gains based on the book value of the business.

Earlier on, a media reported that several financial institutions had shown an interest in acquiring MBf's card business. HLBANK and AMBANK were identified as among the interested domestic commercial banks while several non-conventional financial players (including cooperative banks) had also reportedly shown interests.

We understand that MBF Cards has one of the largest networks in the country with its credit card business having a presence at 33,000 merchants nationwide. As at end-2011, its credit card gross receivables amounted to RM610m, which translated to a market share of ~2%, while its assets and liabilities stood at RM958m and RM724m respectively.

Comments:According to the April 2012 monthly statistic numbers, credit card loans growth was lower at +6.16% (from March 2012's +6.59% YoY). This is in line with the recent household loans growth of +11.7% YoY, which grew at a lower rate for the fourth consecutive month. The downtrend was negatively impacted by the new Responsible Finance guidelines. Hence, we believe that the organic growth of credit card business could have reached a saturated level. As such, the financial institutions (banks and non-banks) are targeting non-organic growth strategies in growing their own credit card businesses.

We are mildly positive on the move. The ability in capturing market share through this acquisition would enable banks to grow fee incomes from merchant transactions as well as interest incomes from credit card loans. Besides, we understand credit card operators need a critical mass in terms of card circulations and merchandisers in order to attract more card applications and to retain existing cardholders. Moreover, organic growth may be less time effective in gaining market share.

Based on our estimate, we anticipate that HLBANK will increase its market share to 15.2% (from 13.3%) and AMBANK to 7.4% (5.6%). We believe that an acquisition would make strategic sense for AMBANK to enhance its market share in short span of time.

While synergies are likely to be seen in the medium-to-long-term, as the enlarged scale of a combined operation should present opportunities for cost savings and supply-chain management, we believe such acquisition will immediately grow the credit card loan of HLBANK or AMBANK by 1.9% and 1.8%. The acquisition is also likely to enhance their respective total income by 7.2% and 5.7%.

Overweight: There is no change in our sector rating and we are maintaining our OVERWEIGHT call on the sector. We have OUTPERFORM calls on MAYBANK (TP: RM10.40), PBBANK (TP: RM15.50), RHBCAP (TP: RM9.60), CIMB (TP: RM8.50), AMMB (TP: RM6.70), AFFIN (TP: RM4.30) and BIMB (TP: RM3.60). AFG (TP: RM3.70) and HLBANK (TP: RM10.90) are rated as MARKET PERFORM calls.

Source: Kenanga