Return of faith: PublicInvest upgrades AMMB to “neutral” from “sell”

DESPITE the dilutive effect from its private placement exercise, AMMB Holdings Bhd has begun to regain the trust of the analyst fraternity on its prospects.

PublicInvest Research has lifted the banking group’s rating to “neutral” from “trading sell” with a target price of RM3.10 or 19.2% higher than RM2.60 previously.

Recall that as a consequence of its RM2.83 bil global settlement with the Finance Ministry (MOF), the research house has downgraded AMMB to “trading sell” with a target price of RM2.60.

“While FY2021 numbers will include a potential RM2 bil in goodwill write-offs which we have now also conservatively assumed into our estimates, we think the worst is likely behind the group,” justified analyst Ching Weng Jin in a company update.

“Earnings dilution from the exercise is the immediate downside, though we remain optimistic over its longer-term prospects, underpinned by its growth initiatives which have been gaining traction.”

On Monday, AMMB announced that it had undertaken a successful private placement exercise, raising RM825 mil through the sale of 300 million shares at RM2.75 apiece which is reported to have attracted, among others, notable investors like former CIMB group chairman and group CEO Datuk Seri Nazir Razak.

The exercise was a move to accelerate the capital accretion of the group and to further strengthen its capital position which will be marred by the global settlement amount.

“Recall in the previous announcement that AMMB pro-forma common equity tier-1 (CET1) ratio will drop from 13.52% to 11.01% after taking the RM2.83 bil hit, while its total capital ratio will drop from 16.39% to 13.88%,” noted PublicInvest Research.

“However, the CET1 ratio will now rise to 11.73% while total capital ratio will increase to 14.59%.”

Despite the share dilution, AMMB’s forward valuation remains relatively attractive at circa eight times price-to-earnings ratio (P/E) while the likely impairment write-down will still see the group trading at circa 0.6 times price-to-book (PB) ratio, according to the research house.

“With the group constantly being touted as a merger and acquisition play, in addition to an earnings recovery play, its relatively attractive valuations leave some room for decent share price upsides on any eventualities,” opined PublicInvest Research.

“(This is) now more attractive considering it is starting from a clean slate.”

At 9.08am, AMMB was down 6 sen or 1.9% at RM3.090 with 318,800 shares traded, thus valuing the company at RM9.31 bil. – April 8, 2021

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