Company update - Righting through rights? - by Mulya Chandra CFA (BDMN IJ / BDMN.JK, TRADING BUY - Upgraded, Rp2,250 - Tgt. Rp2,900, Financial Services)
A rights issue would appear a sensible solution for Danamon's two most urgent capital needs: retiring its sub debt and raising its stake in Adira Finance. We are positive on a potential rights issue on the view that it could restore Danamon's optimal capacity as a mass market-focused bank with potential high growth. Our DuPont analysis shows that its long-term ROE could improve to 19.5% when capital needs are addressed, justifying a valuation of 1.6x forward P/BV. We upgrade the stock to Trading Buy from Underperform, with a higher GGM-based target price of Rp2,900 (from Rp2,400).
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