Maybank - Has The Sleeping Giant Finally Awaken?

Malayan Banking or Maybank is Malaysia's largest financial institution. While other local banks such as Public Bank, CIMB and Hong Leong Bank have been either busy shopping for acquisitions or engaged in Mergers & Acquisitions activities, Maybank had been heavily criticized in the past for being virtually a non-player in the M & A space or expansion mode. A case in point is that Maybank's leading position is increasingly being threatened by the CIMB group, with its latest foray into a piece of China's financial market in the form of a minor stake in Yingkou bank.

Perhaps with the realization that they could no longer afford to sit on their laurels, Maybank has been hot on a shopping spree mode in a span of one week, with first the acquisition of Vietnam's An Binh Bank followed by the more controversial one, being the RM8.6billion (USD2.7b) acquisition of Bank Internasional Indonesia (BII) in which part was purchased from Singapore's Temasek, Singapore Government's investment arm. Both Vietnam and Indonesia are one of the fastest growing markets in the region.

I mention controversial is due to the fact that the price that Maybank paid for the acquisition of BII is at an excessive 4.6 times book value, compared to norms at around 2 to 3 times book value. It is probably a sign of desperation (for expansion), but it is also certain to believe that Maybank sees the vast potential for future growth in Indonesia's financial industry (backed by large population).

With this pricy acquisitions, the investment radar particularly fund managers and analyst were quick to downgrade Maybank's shares. Reason is because the deal will be earnings dilutive in the next one to two years. As such, it is not surprising that share price of Maybank has been in a severe selling pressure from the go, dropping by as much as 10% at one time before recovering to close at 6.1% down.

Question is, is this simply a knee jerk reaction or it's perhaps justifiable to look into it's longer term future?

I would like to recall the case of CIMB (or then Commerce Asset Holdings) acquiring Indonesia's PT Bank Niaga back then in 2002. At that time, the price Commerce paid was also judged to be on the high side and it's share price suffered similar fate to Maybank's, that is, it's share price came crashing down due to concern on earnings dilution and excessive premium. As it turned out, the deal became one of CIMB's biggest trumph card until today!

As such, i believe Maybank has the potential to do what CIMB has achieved. The key is how Maybank manages to add value going forward. Although Indonesia can be a risky market from a political and regulatory standpoint, it's huge market potential is simply too hard to ignore. With competitive bids from other overseas bankers, it certainly boils down to perhaps the highest bid to win the acquisition.

As for Temasek, i was told they made a handsome 5 times gain over their original acquisition cost!

For those investors with a contrarian view and a longer term appetite, i believe Maybank is worth looking into with the current share price weakness. Moreover, its current expected dividend yield is also at an attractive level of around 8%.