Maybank acquires Bank Internasional Indonesia

Maybank acquisition of Bank Internasional Indonesia(BII) is a classic case of peer pressures or institutional imperatives in Buffet's term. Given its size, they did a good job delivering ROE 15-16% by returning cash to shareholders in the last few years. Now they paid 4.6 times book value for BII, spending RM 3.8 Billion to acquire 55% interest from Sorak Financial Holdings Pte Ltd. They may spend RM 8.3 billion to acquire the whole company.

At the height of 1997/1998 before Asian stock markets tanked, a well managed with proven records like Public Bank was trading around 3 - 4 times book value, did Maybank get a good deal for its shareholder?

Foreign research house like Citigroup thrashed the deal to death, downgrade to RM 8 + while local research houses maintain outperform rating with target price of RM $ 10 - RM 11. Who is right and who is wrong?

By looking at the financial results of BII, the results were very uninspiring, very uninspiring. Net profit drop by half, comparing FY 2007 to FY 2004. The culprit was due to high Loan Loss Provision despite of impressive average loan growth of 35%. Lending standards, in my opinion are sub-par standards. In comparison to DBS, their Indonesian operations Net Profit grew by 27% comparing 2005 to 2006, I did not manage to get a copy of DBS 2007 Annual Report yet, just give you a feel though not exactly apple-to-apple comparison.

Looking at macro-level, GDP has been growing at 6% for the last few years, not too good not too bad. Now, Indonesian economy is on the shaky ground. Inflation is getting higher, potential trigger for further interest rate hike. At some point, the economy will slow down, as usual, financial sector will be the loser. Unwinding by the foreign investors will make things worse. Stock market has been rallying fantastically, even better than China market. It has been correcting, should more unfavorable external developments take place, chances of brutal corrections will pull the market down even higher. Thus I could not understand the meaning of scarce premium if one also needs to consider the flip-flop regulatory policies.

Many people will still hope to bank on Indonesian commodities like plantations, coal and petroleum to support economic activities. Agree but .......

Sad to see Maybank to compete with Chinese Bank that flushes with cash. My feet growing cold, I would rather to be a turtle than err buying at this price level, though some may argue, the worst is over for BII. Well, the jury is still out there. As usual there is no right or wrong. I have done my homework, it is OK if I am wrong,