THURSDAY, March 28, 2024
nationthailand

Bank of Ayudhya

Bank of Ayudhya

BTMU to make tender offer for BAY shares BUY

Bank of Ayudhya Plc (BAY)

Event: BTMU to tender for BAY shares. Bank of Tokyo-Mitsubishi UFJ (BTMU)
will make a voluntary tender offer (VTO) for all BAY shares at Bt39/share. GE capital
will sell its entire 25.33% stake in BAY to BTMU. The VTO is targeted to begin in
early November and close in December, 2013. The BoT and MoF must approve the
tender offer.
Partial tender offer? BTMU is eligible to make a tender offer to take it up to the
foreign holding limit. BAY’s foreign holding limit is 47.2%, according to the SET, and
the foreign holding limit for Thai banks by law is 49%. To take the majority stake,
BTMU must gain approval from both the BoT and MoF. The Ratanarak family is
expected to maintain its 25% holding in BAY.
Tender offer price is in line with expectation. The Bt39/share tender price is in
line with what was earlier quoted by some local newspapers and our target price
of Bt40 (1.9 x 2013F BVPS).
Increased corporate focus? Mitsubishi UFJ Financial Group is the largest bank in
Japan and its primary strength is corporate lending with only 25-30% exposure to
retail lending. This may lead BAY to a higher proportion of corporate loans, but we
expect BAY to maintain its focus on consumer lending, which is its strength. The
2006 entry of GE Capital, an expert in consumer banking, has brought the
proportion of retail loans in BAY up to 49%.
Merger with BTMU’s Bangkok branch = Recapitalization risk? We see it as
highly possible that the Bangkok branch of Bank of Tokyo-Mitsubishi UFJ (BTMU)
will merge with BAY, due to the one-presence rule. BTMU’s Bangkok branch had
assets of Bt602bn (55% of BAY’s assets) and loans of Bt208bn (~26% of BAY’s loan
portfolio), as of April, 2013. Based on FY2011 (ending March 2012), BTMU’s Bangkok
branch’s NIM was ~2%, below BAY’s 4.2%, as it has high exposure to low-risk
corporate loans and interbank assets. BTMU’s Bangkok branch’s FY2011 net profit
was Bt3.2bn, accounting for 18% of BAY’s 2013F earnings. The merger could bring
up a recapitalization risk for BAY. If BTMU’s Bangkok branch’s loans are transferred
to BAY, BAY’s tier-1 capital adequacy ratio, which is 9%, would be a bit tight.
However, we believe the earnings contribution from BTMU and synergy with MUFG
will be more than sufficient to offset any dilution effect.
Maintain Buy. We maintain Buy on BAY with a positive view on this deal, with
upside risk from the merger with BTMU’s Bangkok branch.
 

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