Bank of Ayudhya

Bank of Ayudhya Plc (BAY)
GE’s sale of 8% of BAY seems a prelude to its complete exit.   The stock has been excessively sold down on the back of the discounted price of the placed-out shares
and no likelihood of a general offer. But BAY continues to offer good value despite uncertainty over new ownership. The incoming shareholder is likely to keep BAY’s retail focus although transition risks prompt  us to trim our target FY12 P/BV from 2.2x to 2x, which is GGM-based assuming 15.5% LT ROE, 11.7% COE and 7.8% growth. We keep the stock at Outperform on the bright retail banking prospects but drop it from our sector favourites, which are now TCAP and KTB. 
What Happened
GE Capital has placed around 468m shares or 7.6% of total BAY shares to institutional investors at THB31.3 per share, cutting its stake to 25% as a result. It said it will review strategic options in BAY after this share sale.
What We Think
The THB31.3 price per share implies 1.7x P/BV and 12.8x P/E based on our FY12 numbers. While this price seems fair for BAY’s current operations, it does not reflect the promise of the bank’s valuable retail banking platform. GE’s remaining 25% stake in BAY could later be placed to a strategic buyer whose purchase will not trigger a mandatory general offer as long as the buyer’s shareholding does not cross the 25% threshold. Maybank has emerged as a potential bidder
although the timing and pricing for the transaction remain unknown. The price of this 25% controlling stake could be higher than that for the minority stake. Since its entry in 2007, GE has
transformed BAY into a retail-focused bank. Various financial ratios have improved over the years. GE’s exit is leaving behind a promising retail platform. While an ownership change could lead to a redefined strategic direction and management changes, we expect the new shareholder to keep BAY as a retail money machine.
What You Should Do
BAY’s share price has pulled back excessively in response to the share placement at a discount and the now-buried expectation of a general offer at a premium. BAY remains in a value zone although it is no longer among our sector top picks, which now comprise TCAP and KTB.