Bank of Ayudhya
GE to sell BAY stake? BUY (maintained) Target Price: Bt43.00 Price (12/09/12): Bt34.00
Bank of Ayudhya Plc (BAY)
What’s new? Bloomberg reported yesterday afternoon that General Electric (GE) is considering selling its 33% holding in Bank of Ayudhya (BAY). Malayan Banking Berhad (Maybank) was mentioned as a possible suitor.
The US conglomerate purchased its stake BAY in 2006 for US$2.1bn (Bt16/share), assumed management control and transformed it into a retail-platformed operation.
Comment: GE’s possible divestment of its stake in Bank of Ayudhya isn’t entirely surprising. The conglomerate’s financial business took a US$32bn hit in the wake of the Sept 2008 crash. Furthermore, its consumer finance operations in the US and Europe have performed poorly in recent years because of the unfavorable economies in North America and the EU (GE might also be exposed to EU sovereign debt in some manner; in the wake of the 2008 crash it transpired that BAY had US$80m in worthless CDOs on its books—not something the bank would have bought when Krit Rattanarak was in charge).
BAY’s share price has risen 55% so far this year, mostly on anticipation of a much stronger bottom-line performance—we expect earnings growth of 57% to Bt14.6bn for FY12 (led by business expansion and lower LLPs) and 24% to Bt18.1bn for FY13. But its 6.2% surge yesterday was clearly triggered by the Bloomberg article—it went to wire at 3:11pm Thai time and the stock price immediately shot up.
Action: In Thai bank takeovers in recent years, acquisition targets have been bought at big premiums to their valuations (ahead of rumors starting to circulate). But BAY already trades at a YE12 PBV of 1.8x, based on our model, already a significant premium to the Thai Bank sector mean of 1.6x and almost level with the regional banking average of 1.9x. As such the scope for short-term speculative gains is probably modest (GE might even be prepared to sell at a discount to the market price, given that it probably needs the funds).
Regardless, our BUY rating stands with a YE13 target price of Bt43, pegged to justified PBV at 2x. (close to its peak PBV in 2007).
