Maybank Indonesia proposed the disposal of its 68.55% stake in WOM Finance citing it as a strategic initiative. While the disposal is a surprise, the impact on Maybank Indonesia is insignificant; thus, no significant material impact on the Maybank Group. We maintain our call and TP for the group.

Disposal of WOM Finance. Yesterday, MAYBANK announced via Bursa that its 98.3% subsidiary PT Bank MAYBANK INDONESIA (Maybank BI) had entered into a conditional Shares Purchase Agreement (CSPA) to dispose its entire equity of 68.55% stake in PT WAHANA OTTOMITRA MULTIARTHA TBK (WOM Finance) to PT Reliance Capital Management for a total consideration of Rupiah 673.8 billion (approximately RM229.08m) plus the difference between the book value of WOM Finance for the financial year ending 31 Dec 2015 and financial year ending 31 Dec 2016. The completion of the proposed disposal is expected to occur by the first quarter of 2017, upon the conditions precedent of the seller and buyer being fulfilled as prescribed in the CSPA.

Disposal is a surprise. The disposal came as a surprise as WOM Finance had contributed consistently to Maybank BI coffers. For the period 2013-2014 pre-tax contribution was around IDR53b or ~ 3.5% of Maybank BI’s pre-tax revenue. For the 9M16 period, WOM contributed IDR73b or 4.2% of Maybank BI’s pre-tax profit. Furthermore, the disposal is at a loss. From our estimation, Maybank BI’s total purchase cost is IDR781b for the 68.55% stake in WOM Finance. We estimated a difference of IDR75b (ending 31 Dec 2016) in book value, arriving at a purchase consideration of an estimated (IDR673b+IDR75b) or IDR745b. The purchase consideration is at 1.3x BV causing Maybank BI to incur a disposal loss of IDR32b for 2017.

No significant impact. There is no is no significant to Maybank BI. With a pre-tax contribution under 4%, even with a potential disposal loss of IDR32b, the disposal will not have any significant impact on its core earnings for FY17. Note that Maybank BI’s 9M15 pre-tax earnings were much larger at IDR1,293b (FY15: IDR1,545b).

No change in forecasts. Earnings forecasts for Maybank Group are left unchanged as Maybank BI’s contribution to overall Group’s PBT is immaterial (9M16: ~4%).

Valuation and rating unchanged. With forecast unchanged, we keep our GGM-TP of RM8.04. This is based on a 1.08x P/B FY17E (from 1.13x FY17 P/B). The lower P/B multiple is to reflect slower growth and weaker ROE generation moving forward. Assumptions adopted in our GGM-TP are: (i) COE of 8.6% (vs. 8.7% previously (ii) FY17E ROE of 9.1% (vs. 9.5% previously) and (iii) terminal growth rate of 2.5% (unchanged). We maintain our MARKET PERFORM call pending the Group’s 4Q16 results next month.

Source: Kenanga Research - 13 Jan 2017