AMMB’s latest private placement exercise a platform to drive M&A?

THE recent private placement exercise mooted by AMMB Holdings Bhd has potential to pave the way for an emergence of new shareholders, thus changing the banking group’s board composition, according to RHB Research.

Moreover, the research house opined that the combined effect (settlement, placement and goodwill impairment) on AMMB’s return on equity (ROE) will be overall positive on the significant reduction in equity base and by virtue of their one-off nature.

“At a mere 0.5 times P/BV (price-to book value ratio) but with >7% ROE, better capital and dividend outlook, potential divestments, and emergence of new shareholders, we still view AMMB attractive despite the dilution,” opined analysts Liew Wai Hoong and Fiona Leong in a company update.

“Although some investors were put off by the slew of events in the past one month and the fact that it will take time to rebuild credibility, we believe the downside is limited at current valuation.”

Maintaining AMMB’s “buy” rating with an unchanged target price of RM3.40, RHB Research echoed the AMMB’s management’s three main drivers behind the sudden U-turn.

“By accelerating the capital accretion process (vs re-building it organically over 12-18 months), AMMB will likely be able to seek credit rating upgrade, have better bargaining power over the bidders on the planned divestments, and build up a buffer for potentially easier dividend pay-out,” noted the research house.

Last Friday (April 2), AMMB held a briefing to allay concerns over its proposed placement exercise and the potential goodwill write -off (stemming from the impact of COVID-19 on its profitability and the RM2.83 bil 1Malaysia Development Bhd [1MDB] global settlement).

With regard to why private placement was preferred over rights issue, AMMB contended that its existing major shareholders are fully invested (additional investments will require regulatory approval) while embarking on a private placement exercise can save time.

“There will not be concentration risks and the new line of shareholders will be quite diverse (no single individual will hold more than 5%),” suggested RHB Research.

“There will be no change in strategic direction post-placement although we believe the possibility of changes in board composition cannot be ruled out.”

Meanwhile, Hong Leong Investment Bank (HLIB) Research said it would take AMMB’s explanation on face value as it believes the management has acted in good faith and the best interest of shareholders.

“We are not turning bearish as there should not be any more significant negative events that are capable of pushing down share price,” analyst Chan Jit Hoong pointed out while retaining a “hold” rating on AMMB with a lower Gordon growth model (GGM)-based target price of RM2.90 (from RM2.95).

“Also, AMMB’s books are cleaner and thus, fitter for a potential M&A (merger & acquisition) in the future.”

Although the banking group’s valuations are already depressed, HLIB Research observed that its ROE is improving amid a recovery in the general economy.

“However, it has to contend with some less than favourable perception after the unexpected global settlement and surprise capital raising,” added the research house.

At 10.08am, AMMB was unchanged at RM2.98 with 1.91 million shares traded, thus valuing the company at RM8.98 bil – April 5, 2021

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