RHB Capital - Mestika Is A Strategic Fit

RHB Capital (“RHBCAP”) announced last Thursday that it had acquired a 40% equity stake in PT Bank Mestika Dharma. We view the deal as strategically positive to RHBCAP as it  provides the group a platform to enter and tap into Indonesia’s  high-growth economy. In addition, Mestika could quickly grow its commercial banking business, especially in the natural resources niche, by leveraging on RHB’s expertise and operational knowledge in the business. While the short-term impact to the group’s earnings is not material, Mestika will help to diversify RHB’s  earnings geographically in the longer term and reduce its current sole dependence on just the Malaysian banking business.

The deal.  RHBCAP has proposed an acquisition of 40% of the  paid-up share capital of PT Bank Mestika Dharma (“Bank Mestika”) for a total cash consideration of Indonesian Rupiah 2,066.4m (or RM651.1m). Recall that on 19^th  October 2009, RHBCAP had proposed the acquisition of 80% of Bank Mestika with the option to acquire an additional 9% interest after its proposed listing. However, on 13 July 2012, Bank Indonesia (“BI”) came out with a new regulation on shares ownership  in Indonesian commercial banks that stipulated that the maximum limit for shares ownership in a commercial bank by a bank or financial institution shall be limited to a maximum 40% of its paid-up capital. In view of this, on 30 January 2013, RHB Bank has revised down its purchase interest to 40% (from 89% earlier) for RM651.12m in cash.

Pricing of acquisition. Based on the unaudited financial statements as at 30 June 2012, the 12-month PAT of Bank Mestika amounted to Rp277.7b (or RM87.5m) and its net assets (or book value) amounted to Rp1,677.3b (or RM528.5m). As such, the proposed acquisition works out to a PBV of 3.08x and a PER of 18.6x.  

Bank Mestika has a network of 54 branches nationwide, comprising 10 full branch offices and 44 sub-branch offices. 45 branches are located in Sumatera, the majority of which are located in North Sumatera, with two offices located in Batam and seven in Java. The products and services offered by Bank Mestika include trade finance loans, business loans, home loans, automobile loans and deposit-taking. Mestika mainly serves small and medium enterprises, particularly those involved in  the natural resources sector, and retail customers as well.  Due to its primary location in North Sumatera, Bank Mestika has a large exposure to a variety of commodities and agricultural sectors that include CPO, rubber, cocoa and fisheries.

Maintaining our TP at RM8.30 based on a target of 1.3x its FY2013 BV. RHBCAP stands out from its peers as it trades at just 1.2x BV compared to its long-term average of 1.8x.  In our view, the current price of RHBCAP has ignored the strength of its strong ROE of 11-12% (post the new shares issue for its OSKIB merger) and its growth potential as a real challenger to the current market leaders.  We are maintaining our TP at RM8.30 based on a target of 1.3x its FY2013 BV.

Source: Kenanga