Towards Financial Freedom

BI Approves DBS Acquiring 40% Of Danamon

kiasutrader
Publish date: Thu, 23 May 2013, 11:30 AM
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BI's governor, Darmin Nasution, was quoted saying that BI has cleared the way for DBS to acquire a 40% stake in Danamon, which could rise further if reciprocity conditions are met. DBS, meanwhile, said it was awaiting official written notification. We would not be surprised if this gets delayed, pending discussions between MAS and BI, which means the deal could continue to drag on.
  • BI says DBS can buy 40% of Danamon ... News reports yesterday quoted Bank Indonesia's (BI) governor, Darmin Nasution, as saying that BI has approved the purchase by DBS of an initial 40% stake in Danamon, which could rise further if reciprocity conditions between Indonesia and Singapore are met. In response to the reports, DBS said it was awaiting official written notification from BI, but hope its application will be approved as originally submitted. Meanwhile, MAS has said that it is in talks with BI to explore further access into each other's markets.
  • ... but uncertainties may linger over DBS' next move. Judging from DBS' response, it appears that DBS would only decide on the next course of action only after written notification is received. We would not be surprised if the written notification gets delayed, pending discussions between MAS and BI, which means there would still be uncertainties over DBS' next move. It is also unclear at this stage whether DBS will proceed with the acquisition if it is just for a minority stake, given DBS CEO's reported preference for control. That said, we highlight that there still appears to be strong interest in Indonesian banks from foreigners, despite the ownership caps. Japan's Sumitomo Mitsui Financial Group reportedly paid 4.5x book for a 40% stake in Indonesia's Bank Tabungan Pensiunan Nasional, significantly higher than the 2.6x P/BV DBS will be paying for Danamon if the deal goes through.
  • Forecasts. We leave our earnings forecasts unchanged. Assuming DBS acquires a 40% stake in Danamon from Temasek (terms as per original proposal), we estimate FY14 EPS and ROE dilution of 3% and 37bps respectively, which is not too significant.
  • Investment case. No change to our fair value of SGD18.70, which is based on target P/BV multiple of 1.3x. We like DBS for its: 1) Stronger earnings prospects, relative to peers; 2) Cheaper valuations; 3) Robust loan growth and strong capital market pipelines; and 4) Structural changes that appear to be bearing fruit. We think any knee-jerk reaction to the latest news would present an opportunity to BUY the stock.
Source: OSK
DBS (D05)
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