DBS Vickers (M'sia): Maybank, Downgrade to Fully Valued

Maybank: Wins bid for BII

-Story: Maybank has won the bid for a controlling stake in Bank Internasional Indonesia ("BII") and would have to make a tender offer for the remaining stake it does not own. Maybank will pay RM3.6bn for Fullerton's 75% stake in Sorak, RM1.2bn for Kookmin Bank's 25% stake in Sorak and RM3.8bn for the remaining 44.3% stake in BII not owned by Sorak. Maybank may have to fork out up to RM8.6bn for the entire deal. But it will fund the transaction internally as it has ample room to raise Tier-1 and Tier-2 capital of up to RM14bn.

-Point: We think Maybank is paying a premium for the stake in BII for its late entry into the Indonesian banking scene. It had been Maybank's ambition to expand regionally, especially into Indonesia. The transaction price, estimated at Rp510 per share, implies that Maybank is effectively paying 4.1x FY08 BV and 35x FY08 PE for BII, which is the highest recorded M&A transaction for Indonesian banks. BII is estimated to add 8% to Maybank's FY6/09F net profit. After imputing interest and merger costs, the acquisition could potentially lower our FY09 earnings by 11%.
Preliminarily, we think BII will contribute meaningfully from FY6/11 onwards.

-Relevance: Downgrade to Fully Valued with TP lowered to RM8.10 from RM9.00.
We reduced our dividend payout assumption to 60-65%, implying 62.5sen DPS for FY08F (32.5 sen paid out) and 60sen each for FY09F and FY10F. Our sustainable ROE assumption in the Gordon Growth Model is lowered to 15.5% from 17%. Switch to Public Bank and BCHB for earnings growth. Public Bank also offers higher dividend yield of 7-10%.