AFFIN's Indon deal signals bigger things for the bank

The proposed acquisition of PT Bank Ina Perdana by Affin Bank Bhd may be the start of bigger things to come for the Malaysian bank in the Indonesian market, said analysts.

“This is the first step, and there could be more things in the pipeline, for instance acquisitions of other banks and applying for licences for new businesses. They have strong shareholders to back them up,” said one banking analyst.

Affin’s major shareholders include Lembaga Tabung Angkatan Tentera with a 35.7% stake, Bank of East Asia with a 23.5% stake and Boustead Holdings Bhd with a 20.7% stake.

While analysts agree that there is hardly any impact on Affin’s bottomline with the acquisition, they feel that the bank must learn more about the Indonesian banking landscape.

Affin recently proposed to buy Bank Ina for RM138mil. If the acquisition goes through, Affin will have a direct majority shareholding of 80% in Bank Ina, which has 22 branches, sub-branches and cash offices in major cities in West Java and East Java as well as Jakarta.

Analysts say Affin has strong shareholders to back its expansion plans

“Bank Ina’s small size means that it may take time before the bank becomes a major earnings contributor to the group.

“However the venture would allow Affin to gain a foothold in Indonesia and provide the group with a vehicle to expand its syariah banking business. Thus, we retain our ‘outperform’ call,” said an RHB analyst in his report.

Another banking analyst reckons due to Bank Ina’s strategic locations, economic activity is more robust and margins more lucrative.

At the price tag of RM138mil, the bank is valued at a price-to-book value of 1.7 times. Affin also has an option to acquire another 18.01% at 3.15 times book value.

“There is marginal impact on earnings and it has ample excess capital to complete the deal without jeopardising its capital ratios,” said an analyst at Hong Leong Research.

For the financial year ended Dec 31, 2009, the Jakarta-headquartered bank made an after-tax profit of about RM4.75mil.

Its net assets totalled RM39.74mil as at Dec 31, 2009.

The Hong Leong analyst points out that Affin will gain access to a fast growing market with low penetration at a decent price.

This deal also offers potential mergers and acquisition (M&A) opportunities in Indonesia in the future.

On the negative side, however, the impact on earnings is marginal, and Bank Ina does lack the size to compete with the big players.

“Given the small size, Bank Ina faces an uphill task to make a significant impact on Affin’s earnings given aggressive competition from bigger players,” said the Hong Leong analyst.

The banking industry in Indonesia is fragmented with the presence of more than 100 banks.

The top 10 banks, however, take the lion’s share of the market.

Assuming flat earnings growth from Bank Ina and a “forgone” 4% interest income, dilution on Affin’s net profit will only be 0.2%, according to the Hong Leong analyst.

Malaysian banks have been making forays into the Indonesian banking sector, eager to tap on the huge population and robust economic growth.

Malayan Banking Bhd, Malaysia’s top lender, paid a hefty premium to buy Bank Internasional Indonesia two years ago, while CIMB Group Holdings Bhd also has a major presence there through CIMB Niaga.

RHB Capital Bhd recently bought into PT Bank Mestika Dharma.




By TEE LIN SAY