Bank of Ayudhya

Bank of Ayudhya (BAY)

GE comes to agreement with BTMU, declaring tender offer for all BAY's shares
BAY has explained to the SET that major shareholders, GE Capital International
Holdings Corporation (GECIH) and Bank of Tokyo-Mitsubishi UFJ. Ltd. (BTMU), have
signed a share tender offer agreement for BAY's shares, which GECIH held
25.33%. Under the agreement, BTMU will launch a voluntary tender offer (VTO) for
all of BAY's 6,074 million shares at B39 per share and GECIH will tender its entire
1,538 million BAY's shares in the VTO at the same price of B39 per share. VTO is
projected to be launched in early November 2013 and ended in December 2013
after following conditions is approved: 1) Approvals or waivers from the BOT and
the Ministry of Finance for the acquisition of share and increase of foreign
shareholding limit. 2) Approvals from the Financial Service Agency of Japan to
allow BTMU to hold BAY as its subsidiary. 3) Approvals in principal from the
Ministry of Commerce in relation to foreign business license. 4) Approvals from
BAY's shareholders meeting relevant to this acquisition. Additionally, BTMU is also
seeking regulatory and shareholder waivers and approvals in relation to the
potential acquisition of BTMU Bangkok branch’s business by BAY after the VTO ends
according to the BOT’s one presence policy. After the acquisition is complete, BTMU
will become BAY's major shareholder and the Rattanarak's ally, another
shareholder of BAY, which would together develop the business and the synergy.

Positive perspective, waiting to revise forecast after strategy clearly known
We maintain our 2013-2014’s earnings forecast, but are ready to revise it after we
know a clear business strategy of BAY for the next 2-3 years, especially changes in
management and business structures after there are new shareholders. We are still
positive in the case that BAY's former management team is still working in the
company, for their skill and long experience in retail business. We hope that BAY
will keep its clear strategy regarding the retail business as in present, and, at the
same time, show the strength of the new allies, which is global banking business
under its parent company in Japan i.e. Mitsubishi UFC Financial Group (MUFG).
MUFG is a holdings company with shares in over 500 financial institutions in 40
countries and over 40 million retail clients and 0.5 million corporate clients. We
believe that BAY's development in long run will be positive as business synergy
with new allies will fix BAY's former weakness that BAY had no global network to
provide complete service to corporate clients. A success in acquiring/becoming an
alliance with worldwide financial institutions will prove accomplishment and boost
investors' confidence. We also believe that after the VTO ends, BAY can have an
inorganic growth by acquiring BTMU's Bangkok branch business, according to one
presence policy, which will make BAY's loans and assets grow 26% and 54.1%
from present (mostly loans for Japanese clients in Thai business or Thai-Japanese
joint-venture company), while being Thailand’s number 5 commercial bank.
- Recommend T/O, same price as our FV
We still reiterate to buy BAY for the tender offer at B39, which is a suitable price
because it is same as the FV at PBV of 1.91x at B39. Based on long term ROE
forecast of 16%, the current share price has 6% upside.