AMMB announced it is assessing the carrying value of goodwill for impairment on some of its business units and is looking to raise equity capital via private placement of up to 300m new ordinary shares. We are not entirely surprise with any potential goodwill impairment considering it is an annual review exercise and given recent unfortunate events. That said, we were caught off guard by the proposed private placement since AMMB earlier indicated there is no immediate need to raise extra equity capital; potential FY22-23 EPS dilution is 9% with ROE falling 16-31bp. Overall, forecasts were unchanged pending more updates and clarification from management. Retain HOLD with GGM-TP of RM2.95, based on 0.50x FY22 P/B.

NEWSBREAK

AMMB announced that it is assessing the carrying value of goodwill for impairment on some of its businesses (conventional, Islamic, investment banking coupled with asset and fund management), amounting to RM2.1bn. The review will primarily focus on the conventional and investment banking segments (collectively, their goodwill comes up to RM1.9bn). Separately, they are looking to raise equity capital via private placement of up to 300m new ordinary shares.

HLIB’s VIEW

Goodwill impairment. We are not entirely surprise with any potential goodwill impair ment since it is an annual review exercise and recent unfortunate developments. Also, a kitchen sinking move would be welcomed sooner rather than later. In any case, a goodwill write-down is a non-cash item and has no impact to CET1 ratio. However, assuming a maximum impairment of RM1.9bn or RM0.64/share (goodwill from both conventional and investment banking businesses), its book value in Dec-20 may fall by another 12%, after also factoring in the RM2.83bn global settlement (this brings the total decline to possibly -24%).

Private placement. The proposed private placement, however, came as a surprise as management earlier indicated there is no immediate need to raise extra equity capital. Rationale given were: (i) to enhance its CET1 ratio (potentially +70bp but we reckon it is too minimal to make any significant difference), (ii) to improve liquidity and financial flexibility without incurring interest expense (which we feel they will be better off with, given low interest rate climate as opposed to succumbing to the typically higher cost of equity), and (iii) facilitate entry of new institutional investors into the Group.

The issuance of 300m new shares at an illustrative issue price of RM2.70/share (10% discount to the 5-day VWAP), would help AMMB to raise RM810m of fresh cash. The potential FY22-23 EPS dilution from the placement is 9% with ROE declining 16-31bp, assuming no interest income is generated.

Forecast. Unchanged pending more updates and clarification from management.

Retain HOLD with unchanged GGM-TP of RM2.95, based on 0.50x FY22 P/B with assumptions of 7.1% ROE, 11.3% COE, and 3.0% LTG. This is at -1.5SD of its 5-year average P/B and beneath the sector’s 0.90x. The discount is fair given its falling ROE trend (1-2ppt lower vs 5-year and sector mean). While we dislike the idea of a private placement, this exercise will help to strengthen its financial and capital position.

Source: Hong Leong Investment Bank Research - 2 Apr 2021