Bank of Ayudhya

Bank of Ayudhya Plc (BAY)

What’s new? Reuters reported yesterday that General Electric (GE) hired Morgan Stanley to review its 33% holding in the Bank of Ayudhya (BAY).
As we noted last week (Sept 13) Bloomberg reported that General Electric (GE) is considering selling its 33% holding in Bank of Ayudhya (BAY). It mentioned Malayan Banking Berhad (Maybank) as a possible suitor (though it later transpired that Maybank probably isn’t a realistic buyer, as its capital base is too low).
Comment: GE’s possible divestment of its stake in Bank of Ayudhya isn’t entirely surprising. The US conglomerate purchased its holding in 2006 for US$2.1bn (Bt16/share). That means GE has made a 120% capital gain, given that BAY closed yesterday at Bt35.25.
We expect the bank to achieve earnings growth of 57% YoY to Bt14.6bn for FY12 (led by business expansion and lower LLPs) and 24% to Bt18.1bn for FY13.
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 of acquisitions being in the offing). But in those cases, the banks in question had low valuations. In contrast, BAY already trades at a YE12 PBV of 1.9x, based on our model, a significant premium to the Thai Bank sector mean of 1.7x 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 a justified PBV at 2x.  (close to its peak PBV in 2007). That implies about 22% share price upsides from the current market price.