Wednesday, May 7, 2008

Maybank takes stake in Pakistani Bank, Part II

What I like about the deal: Maybank paid RM 2.2 billion for 15% stake in MCB.

(i) A bank with a 60 years of history, established since 1947.

(ii) Low loan-to-GDP, 30%. Ample opportunity for growth

(iii) Excellent ROE, 38%. Solid profitability and balance sheet strength.

(iv) Well managed - winners of Euromoney Awards and Asia Money Awards.

(V) Opportunity to expand into consumer and Islamic banking.

What I don't like.

(i) It's expensive, 5 times book value

(ii) 50% of the loan base is from corporate

(iii) Political risks even though reformation is in progress.

(iv) Currency risk is if energy cost continue to soar beyond reasons.

Looking at the market today, investors punished Maybank by sending price to $ 7.70, down 4%. Some already switching to Public Bank or AMMB. Most of them are concerned about dividend cut or fear of earning dilution from potential fund raising. Let's put it another way, assuming this $2.1 billion investment is declared as dividend equivalent to RM 0.43/share. Unless you think MCB is going to lose money, or else the most severe punishment is shave off RM 0.50/share from its fair value.

Guys and gals, I know it is easy to get emotional with all the headlines. Let's focus on Maybank itself, I think most have gone too far punishing Maybank by sending it down to less than 2 times book value, 12 times PE with a decent dividend yield. I know a company under pressure to acquire tends to overpay but investors that over-reacted selling irrationally provide us some margin-of-safety.

For those with long-term investment time horizon, $ 7.70/share is attractive , $ 7.00 is a great bargain, $ 6.50 is a steal but I don't think it will get down to that low.

1 comment:

The Wanderer said...

Hi Turtle,

Some how you do sound Zen-ish....