Mandiri (CC)
BDMN UPGRADE TO NEUTRAL TP 7000
*MUFG to Own 40% Stake in BDMN in 3Q18*
MUFG is scheduled to finalize its acquisition of 20.1% stake in BDMN in 3Q18, raising its stake to 40%. Valuation will be the same as in stage 1, at 2.0x P/BV with certain adjustments. The next step is to get approval for >40%, expected sometime in 2020. We raise our TP to Rp7,000 from Rp4,600 and call to Neutral from Sell.
Stage 2 of MUFG’s strategic investment in BDMN in 3Q18. Following the purchase of 19.9% stake in BDMN in Dec 17, MUFG is in the process of acquiring another 20.1%. This will increase its ownership to 40%, the maximum allowed for a financial company to own an Indonesian bank. MUFG indicated earlier this process will be done in 3Q18, pending the fit & proper test by OJK. The price is set similar to the valuation in stage 1, at 2.0x P/BV historical with certain adjustments. We estimate this will be at Rp8,500-8,700 based on the upcoming Jun18 data.
Stage 3 in 2020. MUFG will have to wait at least 3 x consecutive 6-month periods post the 40% ownership to seek approval to own more stake in BDMN. The company would like to own at least 73.8% stake in the bank. During the waiting period, it has to secure grade 1 or 2 (out of 5) for the bank’s healthy rating and good corporate governance. If all requirements are met, this will be sometime in 2020.
No merger plan between BDMN and MUFG. They indicated there is no merger between BDMN and MJFG, which is a branch office, not an Indonesian incorporated bank. To avoid the single presence policy, BDMN, however, will have to merge with BNP (Bank Nusantara Parahyangan), which is 75.5% controlled by MUFG together with ACOM CO, Ltd. Given BNP’s assets size of Rp8tr, the impact will be minimal to BDMN.
Minor earnings revisions. We tweak our numbers for 2018-19 with lower expected loan growth but better margin due to some loan mix changes.
Revised TP and recommendation. Given the expected purchase price and cash offer of Rp9,500-10,000 in stage 3 in 2020, we set our new TP at Rp7,000 (implying 1.5x P/BV 2019E) after discounting this price at 20% pa. This compares to Rp4,600 if we use the GGM, which sets the counter at 1x P/BV 2018-19. We expect minority shareholders to accept the cash offer by MUFG, which will affect the share trading liquidity in the future. We upgrade our call to Neutral from Sell.
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