Malayan Banking : Disposal of 68.55% shares in WOM Finance likely to result in slight loss to Maybank Indonesia HOLD

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Malayan Banking : Disposal of 68.55% shares in WOM Finance likely to result in slight loss to Maybank Indonesia                  HOLD

It was announced that Maybank Indonesia, a 78.98% owned subsidiary of Maybank has entered into an agreement to dispose its 2.38bil shares, representing 68.55% equity interest in WOM Finance to PT Reliance Capital Management. WOM Finance is a subsidiary of Maybank Indonesia involved in financing of new and used motorcycles.The disposal consideration for the 68.55% shares in WOM Finance has been fixed at approximately IDR673.8bil or RM229.1mil plus the difference between the book value of WOM Finance based on its audited accounts as at end of 31st December 2016 and the book value for the financial year ended 31st December 2015. The deal is expected to be completed by 1st quarter of 2017. The shares have been disposed off to optimize the use of Maybank Indonesia's capital and streamline its customer segmentation.

The final price could still change depending on the 4QFY16 profit of WOM Finance. Compared against the cost for the 68.55% shares of IDR781bil, we estimate this deal to result in a loss of IDR59bil to Maybank Indonesia or an impact of -RM15.8mil to the earnings of Maybank at Group level.  Consistent with our treatment for all banks, we will exclude the impact of any one-off gains/losses from disposal of assets from our core earnings estimate. For 9MFY16, WOM Finance reported a PBT and PAT of IDR73bil and IDR57bil respectively. WOM Finance's PBT contributed minimally to PBT of Maybank Indonesia of IDR1,753bil for 9MFY16 (circa 4.2%). This will translate into a minimal loss in terms of earnings contribution to Maybank Group after the disposal of the shares.  On capital , we expect the completion of the deal to result in an marginal uplift of 5bps to the Group's CET1 ratio to 13.75%. Recall that WOM Finance reported a gross NPL ratio of 3.84% in 3QFY16. This disposal is expected to lower Maybank Indonesia's consolidated NPL ratio of  3.97%. We maintain our forecast and our fair value of RM8.00/share based on an unchanged ROE of 10.3% for FY17F leading to our P/BV of 1.2x. We keep our HOLD call on the stock.

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