Indon Bet

Malayan Banking Berhad ("Maybank") roared and surprised investors today by announcing that it would pay USD1.5 billion or roughly RM4.8 billion for a 56% stake in Indonesia's sixth largest lender, namely Bank Internasional Indonesia ("BII"). The price tag commands 23% premium to the Indon bank's share price on Tuesday and would also offer to buy out the Indon Bank's minority shareholder for USD1.2 billion or roughly RM3.8 billion.

Is that a good news?

Maybank's shares tumbled to a 3 1/2-year low today to about RM8.20-RM8.30.

"The price tag... was more than 50% higher than we assumed for a mediocre franchise," Citigroup said in a note, downgrading Maybank to a sell from a buy. It slashed Maybank's target price to RM8.38 a share from RM10.63.

At the first few minutes of opening of the stock market, it dived to RM8.00, its lowest level since August 2004. The price offered to buy BII represented 4.6 times book value, considered expensive even when compared with Chinese banks that trade at between 3.3 and 5.4 times book value, according to Reuters data.

"Short term pain, long term gain", echoed local research houses like CIMB and OSK. I agreed. At RM8.30, Hengdai Equity Fund invested 150 units based on the remaining cash on hand. Do not worry about the minimum brokerage fee (that jacks up the total cost since the units purchased were low at 150 units) as I have managed to purchase those units from a related fund that took up 1,000 units.

We report more about this week's investment - The Indon Bet. Stay tuned.