Bumiputra-Commerce
Moving into China with Yingkou
-Story: BCHB bought a 19.99% stake in Yingkou Bank, China for a total consideration of US$49m (RM156m), making it the single largest shareholder.
This is equivalent to 1.6x adjusted book value. We think the price is fair compared to Hong Leong Bank's Chengdu Bank that was acquired at 2.5x enlarged NTA.
-Point: This is in line with BCHB's regional expansion plans. We see the Yingkou Bank acquisition as neutral to BCHB in the immediate term. But as business opportunities grow, this acquisition should be gradually earnings accretive.
-Relevance: Buy call maintained with a target price of RM12.90 (from RM13.00), derived from the Gordon Growth Model. We rolled over our valuation to CY09 book value, and lowered our long term growth rate assumption to 5% from 6% previously. Other parameters i.e. sustainable ROE of 18% and cost of equity of 11% are unchanged. We also lowered our FY09F estimates by 4% afterimputing lower non-interest income growth.
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Tuesday 1 April 2008
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