About AMMB’s quest of navigating out of ‘mother of all fines’

THE fact that Ambank has been slapped with a RM2.83 bil fine by the Finance Ministry (MoF) for its past involvement in the 1Malaysia Development Bhd (1MDB) scandal will certainly not augur well for its parent company, AMMB Holdings Bhd.

Further to the development pertaining to the global settlement proposal, the company’s board has requested for a suspension on the trading of its stocks on Bursa Malaysia for today and tomorrow (Mar 2), according to an exchange filing.

With the settlement costing a whopping sum, PublicInvest Research expects AMMB’s FY2021 numbers to be materially impacted by a provision of the said amount, while no dividends will likely be paid for its financial year ending Mar 31, 2021.

“While the group had been seeing traction in its transformation plans, challenges from the COVID-19 pandemic notwithstanding, this development will undoubtedly scar investor confidence in the near term,” commented analyst Ching Weng Jin in a company update.

“We cut (its) FY3/2021 estimates to account for the extraordinary provision, while lowering our call to “trading sell” (from |hold” previously). Our target price is also trimmed to RM2.60 (from RM3.50 previously) as we make changes to our dividend payout assumptions.”

Elaborating further on share dividend, the research house noted that it may take a while for the group to revert to its historical payout ratio of circa 40% as it balances the need for shareholder rewards against fast-tracking its growth momentum recovery.

“RM2.83 bil equals the last five years’ total dividend payout, combined,” added PublicInvest Research.

Hong Leong Investment Bank (HLIB) Research described the fine as “a huge negative surprise” especially as it thought AMMB has laid the past behind it when it settled the RM54 mil fine by Bank Negara Malaysia back in 2015 (then deemed the largest fine imposed on any Malaysian financial institutions).

The research house downgraded AMMB to “hold” (from “buy” previously) while lowering its Gordon Growth Model (GGM)-based target price by 27% to RM2.95 (from RM4.05).

“All said and done, 1MDB is a legacy issue,” argued analyst Chan Jit Hoong in a company update. “Currently, AMMB is run by a new management team and was doing well, on stronger footing, before this RM2.83 bil MoF fine came into the picture.”

RHB Research expects the settlement to slash 15% and circa 94 sen off AMMB’s shareholders’ equity and book value per share (BVPS).

“(Its) share price would fall towards circa RM2.22 should the full 94 sen be priced in; AMMB would be valued at 0.4x P/BV (price-to-book value) at this price, identical to the trough level seen during this pandemic,” projected analysts Liew Wai Hoong and Fiona Leong.

RHB Research nevertheless maintained its “buy” rating on AMMB with an unchanged target price of RM4.20 pending further clarification by the AMMB management. – March 1, 2021

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