Oversea-Chinese Banking Corp

(Sept 11: $11)

MAINTAIN BUY. Speculation has surfaced that Oversea-Chinese Banking Corp (OCBC) is mulling an acquisition of 89.2% of Bank Permata from Standard Chartered Bank (SCB) and Astra International. Both shareholders have an equal stake of 44.6% in Bank Permata. We see higher probability of OCBC emphasising on its northbound expansion to increase its 20% stake in Bank of Ningbo (BON), as and when allowed to do so by the authorities in China. It will also deploy capital to support expansion to double profit before tax from the Greater Bay Area (GBA) to $1 billion by 2023. Acquisition of Bank Permata would increase OCBC’s total assets and risk-weighted assets (RWA) in Indonesia by 3.9% and 4.7% respectively. The potential acquisition would propel OCBC to be the fifth-largest bank in Indonesia. Bank Permata is smaller than OCBC NISP and has a low ROE of 5.9%. It may not be worth the effort to acquire Bank Permata, owing to its chequered history. We maintain our earnings forecasts. Gordon growth model (GGM)-based price target of $14.48, based on 1.40x 2019F P/BV.