Banking:BNII and BNGA: post acquisition - Mandiri Sekuritas

It’s more than two years after Bank Niaga (BNGA) and Bank International Indonesia (BNII) were taken over by Malaysian banks as majority shareholders. Post acquisition, both banks reported better performance, with BNGA leading the race. Even though the current valuation looks excessive, positive catalyst remains once the floating shares are increased. We have no rating on both banks, but certainly BNGA is one of the banks worth looking at.

Better funding proportion for BNGA... Overall, their performances improved post acquisition, with loans, deposits and CASA growing higher than the sector. In terms of funding, BNGA recorded better performance as reflected in higher growth in deposits and CASA. BNGA’s CASA proportion was recorded at 43.6% at end 2010 compared with BNII’s 40.2%. It seems that BNGA had better strategy to deal with the funding than BNII’s. Our latest meeting with BNII’s management highlighted that the bank has been lagging behind in terms of improving its e-channel capabilities, which might become the culprit behind the lower deposit and CASA growth. As a result of better CASA proportion, BNGA’s cost of funding came lower at 4.7% in FY10 compared with 5.1% for BNII.

... led to higher profitability. Consequently, BNGA posted higher NIM of 6.5% in 2010 compared with 5.9% for BNII. This had supported stronger profit growth of 98% CAGR for BNGA for the past two years compared with -0.8% CAGR for BNII. Therefore, BNGA’s ROAE was higher at 20.4% in FY10 vs 7.4% for BNII.

Valuation is excessive, but worth looking at. Overall, BNGA performed better than BNII post acquisition. At current price the stock is trading at 2011 consensus PBV of 2.5x and PER of 16.2x for BNGA and 3.9x and 25.6x for BNII compared with the sector’s 2.8x and 13.3x, respectively. Even though valuation looks excessive, we still see positive catalyst for both banks: (1) the possible listing of CIMB Group Holdings in Indonesia, which will boost sentiment toward the bank’s share price, in our view, and (2) the divestment of Maybank’s shares in BNII to public at the latest Jun11 (Maybank has to divest minimum 20% ownership to public post acquisition. So far less than 1% stake has been sold to the public at an average share price of Rp799/share). Consequently, we still believe any weaknesses in the share price will become a good buying opportunity.