29 Aug 2017
The Edge : AMMB undervalued following ‘unjustified’ selldown — analysts
AMMB undervalued following ‘unjustified’ selldown — analysts
Ahmad Naqib Idris / The Edge Financial Daily
August 29, 2017 09:57 am MYT 

KUALA LUMPUR: The selldown in AMMB Holdings Bhd shares following the scrapped merger talks with RHB Bank Bhd was unjustified, as the bank is still fundamentally sound, according to analysts.

Since the announcement of the failed merger, AMMB has fallen 5% from its closing price of RM4.70 last Tuesday. Prior to that, the banking stock had already been on the decline, retreating from a two-year closing high of RM5.62 in May. The stock closed at RM4.43 yesterday.

Following the group’s result briefing last week, Hong Leong Investment Bank Bhd (HLIB) analyst Khairul Azizi Kairudin said in a note yesterday that it is business as usual for AMMB, adding that the group posted commendable results for the first quarter ended June 30, 2017 (1QFY18).

“Despite the merger discussions with RHB, AMMB delivered commendable 1QFY18 results amid a quiet quarter due to Ramadan and Hari Raya.

AMMB’s quarterly financial figures came in in line with HLIB’s consensus expectations with earnings growing 1.6% year-on-year (y-o-y) and 31% quarter-on-quarter, he said.

Khairul said the management had refuted the claims that the merger was scrapped due to contingent liabilities at the recent results briefing. Instead, it was attributed to the two parties being unable to reach a conclusion over various terms, including pricing and synergy.

Following the failed merger, Khairul said the bank will be pursuing its Top 4 initiatives — aimed at growing its four segments, namely wholesale banking, business banking, retail banking and general insurance — organically.

“We feel that AMMB is showing progress towards its Top 4 aspiration by 2020,” Khairul wrote in the report.

The research house maintained its “buy” call on the stock with a target price of RM5.20, adding that AMMB is currently trading at a steep discount of 0.78 times its book value.

Similarly, Affin Hwang Investment Bank Bhd analyst Tan Ei Leen said the group is still operationally sound and has upgraded AMMB to “buy” from “hold”.

“The recent selldown in AMMB’s stock was unjustified in our view, subsequent to the aborted merger plan with RHB [Bank], while there were concerns about huge contingent liabilities in the group.

“AMMB’s management gave assurance that these were due in part to the ordinary course of business and not a major concern,” she said.

Meanwhile, MIDF Amanah Investment Bank Bhd said asset quality remains a concern as the gross impaired loan (GIL) ratio remains elevated at 1.88%, up 19 basis points (bps) y-o-y.

“This came from [the] wholesale banking segment where [the] GIL ratio was 49bps higher at 2.39% as there were impairments on a few accounts, particularly from a property developer,” said the research house.