Disposing stake in WOM Finance

Malayan Banking Berhad (Maybank) announced on the Bursa Malaysia that Maybank Indonesia had entered into a conditional shares purchase agreement with PT Reliance Capital Management for the proposed disposal of Maybank Indonesia’s entire equity interest of 68.55% in WOM Finance to RCM. The Proposed Disposal involves the sale of Maybank Indonesia’s entire equity interest in WOM Finance to RCM for a total cash consideration of approximately Rp 673.77bn (equivalent to approximately RM229.08 mn), plus the difference between the book value of WOM Finance as set out in the audited accounts of WOM Finance for the financial year ended 31 December 2016 and the financial year ended 31 December 2015 in proportion to Maybank Indonesia’s 68.55% equity interest in WOM Finance.

Minimal impact from sale, some gains to be recognised

We estimate the deal to be valued between 1.2-1.3x PBV. We are slightly positive on this sale as it is in line with Maybank’s effort to streamline operations and optimise capital usage. Although WOM Finance makes up around 30% of Maybank Indonesia’s PBT, the impact from the sale to the group is not material, contributing to less than 3% of Maybank’s PBT. Nevertheless, we foresee possible gains from this sale to give some boost to 2017 earnings. The proposed disposal is expected to complete by the 1Q.

Vehicle financing remains challenging in Indonesia

We note that the vehicle financing market remains challenging in Indonesia, with demand for 2 and 4 wheel vehicles contracting YoY. Operationally, WOM Finance recently turned around, reporting 9M16 PBT of Rp 73bn (from loss of Rp 22bn in 9M15) on the back of more intense collection efforts. ROE dipped from 13.4% in 2013 to 2.1% in 2.15 before recovering back to 9.8% in 9M 2016. In terms of asset quality, WOM Finance’s net NPL and gross NPL ratios have deteriorated slightly to 1.36% and 3.84% in September 2016 from 1.01% and 2.95% a year ago.

Impact and valuation

We make no change to our earnings estimates, at this juncture. TP is maintained at RM8.00. This translates to a reasonable implied FY17e PBV of 1.17x. The industry is currently trading at average PBV of 1.1x. However, given that share price had risen sharply in recent weeks, we downgrade Maybank from hold to SELL on the back of the potential downside risk in share price. Key upside/downside risks to our fair value include: 1) solid improvement in overseas operations, 2) potentially stronger earnings from cross border internal strategies within its regional operations, 3) better contributions from a pickup in capital market activities and the insurance and takaful business, 4) pricing pressure resulting in pressure on NIM, and 5) potential rise in defaults in the group’s O&G exposure in Singapore.

Source: TA Research - 13 Jan 2017