Excerpts from CGSCIMB report

OCBC (SGX: O39)

• OCBC Indonesia will be acquiring 99% of PT Bank Commonwealth (PTBC) for a cash consideration of c.S$191m, valuing PTBC at c.0.5x FY23F P/BV.
• While we think that the transaction is priced attractively, we highlight potential asset quality clean-ups and cost rationalisation measures before integration.

Reiterate Add. We expect neutral share price reaction from this news.

OCBC acquiring PTBC for an upfront cash consideration of c.S$191m

PT Bank OCBC NISP (OCBC Indonesia) announced today (16 Nov 2023) that it will be acquiring 99% of the shares in PT Bank Commonwealth (PTBC) from Commonwealth Bank of Australia (CBA) for an upfront cash consideration of c.A$220m (c.S$191m).

OCBC Indonesia is currently trading at c.0.7x FY23F P/BV. The acquisition will be funded through internal cash and is subject to regulatory
approvals from the Financial Services of Indonesia (Otoritas Jasa Keuangan) and Annual General Meeting of shareholders.

Following the completion of the acquisition, PTBC will be integrated into OCBC Indonesia. OCBC Indonesia expects the deal to be completed in 2Q/3Q24.

According to CBA, this is in line with its strategy to focus on its core banking business in Australia and New Zealand. According to OCBC, OCBC Indonesia also intends to acquire the remaining 1% shares of PTBC from the other (local) shareholders.

PTBC at a glance (as at 30 Sep 2023)

PTBC has been loss-making since 2020 due to declining customer volumes. It recorded more than 1.2m customers. According to OCBC, there is little overlap between OCBC Indonesia and PTBC.

It has complementary capabilities in wealth management and auto joint financing that can be leveraged by OCBC Indonesia. Total assets of c.S$1.4bn, net assets of c.S$355m, CET1 of 38.4%, gross loans of S$735m, total deposits of S$735m.

PYBC gross NPL ratio of c.1.95%. This ratio had eased from c.5.1% in FY20 due to the provision of the Standby Letter of Credit from CBA in relation to the Debt Relaxation Programme. It has 30 branches, 30 e-kiosks and 74 ATMS in 23 major cities across Indonesia.

OCBC valuation/recommendation

Reiterate Add with an unchanged GGM-based TP. OCBC Indonesia is currently the 4th largest private sector bank by assets (c.S$21.4bn) as of 31 Aug 2023.

Although PTBC is a considerably smaller-sized bank (by assets), we believe that it will add scale to OCBC Indonesia. That said, we believe that that there will be some portfolio clean-up in terms of asset quality and cost rationalisation to be done before integration with OCBC Indonesia.

There could also be regulatory approvals needed in terms of the branch/headcount rationalisation, in our view. The acquisition is guided to have no material impact on OCBC Group’s net tangible assets, EPS or capital position for FY23F.

You can find the full report here and the company website here.