Our analysis on the reported Bank
Mandiri-Bank Tabungan Negara merger suggests a neutral to mildly positive
impact on the former’s ROAE and a cash call may be required to maintain capital
position. While the enlarged group’s mortgage market share should rise to 34%,
cost management, culture gaps and potential NPL coverage alignment, could
hamper synergy extraction. A 100% controlling stake is preferred, in our view.
Attempting a scenario
analysis. We
attempt to analyse the pros, cons and financial impact of a hypothetical
acquisition/merger between Bank Mandiri and Bank Tabungan Negara (BBTN IJ,
SELL, TP: IDR1,100). An acquisition should be a silver lining for the latter
but the value proposition for the former is less obvious. We believe the deal
should have a neutral or mildly positive impact to Bank Mandiri’s ROAE.
A cash call is
likely. We
used several assumptions in our scenario analysis, namely: i) an acquisition of
60.1% or a 100% stake; ii) cash, recapitalisation (recap) bonds or rights
issues financing options; and iii) 1.3x acquisition multiple or 1.8x trailing
P/BV. A 100% cash or recap bonds-funded deal should be EPS accretive by
2.0-8.4%, lifting ROAE by an estimated 37-156bps. However, we believe a cash
call is more likely, as a cash or recap bonds transaction would lower Bank
Mandiri’s Tier-1 capital ratio to 10.2-11.4% (Dec 2013: 13.4%). That said, a
cash-raising exercise of 10% of the current market cap should likely have
minimum dilutive impact on EPS and ROAE.
The
biggest get bigger, but most metrics should weaken. On a pro-forma basis,
the enlarged group’s asset should grow by ~18%, representing ~17% of industry
asset. It should also become the largest mortgage lender with a 34% market
share. With the exception of ROAE, which is dependent on the deal’s structure,
all other key ratios of the pro-forma group should weaken, given Bank Tabungan
Negara’s inferior operating metrics. Headcount should rise by 25%, a significant
jump that may require some staff rationalisation or redeployment. Any
realignment of Bank Tabungan Negara’s low non-performing loans (NPL) coverage
ratio of 28% (relative to Bank Mandiri’s 170%) should also likely affect
earnings materially. We believe a full merger should allow smoother integration
of operations and extraction of synergies. (Rocky
Indrawan)
ON
THE PLATTER: Indonesia
Economy: Money Supply Moderated Further, Economic Activities Will Be Marginally
Lower
MEDIA
HIGHLIGHTS:
BNI
scraps BPUI acquisition plan
Holcim
Indonesia’s Tuban-1 operation and 73% dividend payout
Indonesia
will focus in exporting Toyota Vios
20%
of handset demand will be supplied locally
Monetary
tightening considered overdose
Oil
and gas contractors complains for incentives for deep sea exploration projects
National
coal production cap may start in 2015
Best
regards,
RHB
OSK Indonesia Research Institute
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