AMMB announced yesterday that the AmBank Group’s Managing Director Ashok Ramamurthy  will be stepping down to rejoin  his family and resume his  career  at  the  ANZ  Banking  Group  after  a  stint  of  8  years  with  the AmBank  Group.  AmBank  also  clarified  that  Ms  Pushpa  Rajadurai, Managing Director of Wholesale Banking, Coverage, Mr Kok Tuck Cheong Managing Director, Wholesale Banking, Products and Ms Mandy Simpson, Group  Chief  Financial  Officer  are  still  with  the  Group  and  will  continue  to serve within the Group. (Source: Bursa Malaysia)

Comments:  We  are  of  the  view  that  the  news  will  continue  to  have  a negative impact on AMMB’s share price until more clarity on the transition and  succession  plan  of  the  group  MD.  Meanwhile,  we  believe  that  the market  will  remain  less  optimistic  of  the  Group’s  outlook  given  industry speculation of other top executives of whom contracts may not be renewed as well.

We  maintain  our  SELL  rating  on  AMMB,  with  PT  at  RM4.80  based  on  a 0.96x  P/BV  multiple.  AMMB’s  core  operating  profit  (ex-disposal  gain) remains unexciting owing to weakening NIM (expected to contract 35bps in FY15E  and  8bps  in  FY16E)  as  the  AmBank  Group  realigns  its  portfolio. Efforts to boost CASA growth have not born much fruits (still at 20% vs. the last  2  years  and  below  the  industry  at  25%).  Its  franchise  is  not  as established  as  competitors  especially  in  the  retail  space.  Our  forecast  of below industry ROE generation of 9.7-9.8% in 2015-16E vs. the industry of 11.6-11.8%  would  discourage  investors  from  holding  to  AMMB’s  shares. For  sector  exposure,  we  favour  Public  Bank  (BUY  PT:  RM20.00  at  2.59x P/BV)  and  Hong  Leong  Bank  (BUY  PT:  RM15.50  at  1.64x  P/BV)  given  a more stringent track record in credit underwriting standards and niche in the retail financing market.

Source: Affin Hwang Capital Research - 30 Jan 2015