CIMB Group Berhad (CIMB) announced that it has acquired 60% of
Bank of Commerce (“BoC”) from the San Miguel Corporation (“SMC”) for PHP12.2b
(RM881m) with a full cash settlement.
BoC is valued at a 1.14x P/Bv as at 31 Dec 2011 or a PER of 21.0x; but upon
full alignment with CIMB Group’s accounting standards, the effective P/Bv
is expected to
rise to about
1.3x. We believe
BoC’s low loan-to-deposit ratio of 45% and high CAR ratio of 23.1%, is under-leveraged
and offer a high growth potential for CIMB to enter into the Philippines. Besides, CIMB signs a Collaboration Agreement
with SMC, one of the largest conglomerates, as banking referrals. As such, we believe the acquisition is
earning accretive over the medium to long term.
More importantly, this will give CIMB a full ASEAN banking
coverage. Together with the RBS’s IB
Asset acquisition, the group is positioning itself for the next Asia’s recovery
cycle, in our view. We maintain our
forecast for now. As such, our target price of RM8.50 and OUTPERFORM call are
maintained. Currently, CIMB’s share price is trading at 13.2x FY12 EPS, which
is not demanding as compared to its 3-year historical mean of 15.7x and just
marginally above its low in 2009 of 12.6x.
The BoC acquisition. CIMB has entered into a Sale and Purchase Agreement
with SMC on 8 May 2012 for the acquisition of 60% of BoC for a total cash
consideration of PHP12.2b (or equivalent to approximately RM881m). The deal also include including the signing of a Collaboration Agreement with SMC
for banking referrals into SMC eco-system.
The effective Price to Book ratio of the transaction is 1.3x after
realignment of accounting standards. Management expects a 3-4 months
consolidation for 2012 and to complete the acquisition by Sep 2012.
Operational and strategically
right fit. The deal will see CIMB
entering into the low-penetration Philippines’s banking market on a smaller
scale basis. BoC is the 16th largest bank in Philippines and has been in a
“cleanup” mode over
the last few
years. BoC’s reported
PAT of RM42m
in 2011, with the purchase price
of RM881m, the acquisition PER is >20x.
However, the bank is under-leveraged with high a growth potential as
proven by its low LDR and high CAR. The
collaboration with SMC will enable BoC to continue to access into SMC’s ecosystem
and to tap into a sizeable SMC-related entities as well as suppliers and
customers. These will enable BoC to grow its corporate loan book aggressively
over the immediate term.
CIMB’s
management is eyeing
to build BoC
to become one
of the top
ten banks in Philippines by immediately growing its corporate loans.
This is achievable through CIMB’s strength in deriving synergy out of the acquisition
and collaboration with SMC. Post acquisition, SMC will still retain a 27% stake
in BoC.
We are positive on the deal given that the acquisition will
not only provide CIMB an entry into Philippines but more importantly, it has
reaffirmed CIMB as an ASEAN-based bank with the largest branch network.
Source: Kenanga
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