• AMMB announced that the group will be undertaking a proposed private placement of up to 300m new ordinary shares (9.97% of its share capital, with total proceeds of ~RM810m to be raised) after a re-assessment was made
• It’s not a surprise to us for the change in management’s strategic decision as raising capital through a private placement is more immediate coupled with a 71bps enhancement to CET1 ratio and will not increase funding cost
• In a separate announcement, AMMB’s Board is also reviewing the carrying value of the goodwill amounting to RM2,093m within the group (with the key focus on its conventional banking (RM1,495m) and investment banking business (RM428m)), of which may result in an impairment exercise (nonrecurring in nature and will not impact capital ratios). Maintain SELL with our TP of RM2.90 (based on 0.5x P/BV target on CY22E BVPS)

A Proposed Private Placement of Up to 300m New Ordinary Shares

AMMB announced that the group will be undertaking a proposed private placement of up to 300m new shares, representing 9.97% of the Group’s ordinary share capital (excluding treasury shares). Based on an illustrative share price of RM2.70, total proceeds are expected at RM810m. To recap, AMMB also mentioned that it would be setting aside a RM2.83bn provision in 4QFY21, in respect of the ‘RM2.83bn’ Settlement with the Ministry of Finance. Though the decision to embark on an equity capital raising was contrary to management’s earlier stance, we however agree with AMMB’s change in strategic decision as the move allows raise funds to be raised expeditiously and immediately. Compared to raising a Tier-2 Capital, this could be a more lengthy process and could increase near-term funding cost more significantly.

Impact of the proposed private placement – enhancement to core capital ratios

The ‘pros’ are: i) enhancement to CET1 and total capital ratios by circa 71bps each, subsequent to an erosion of 251bps arising from the Settlement sum; ii) lowers the overall gearing from 0.37x (after the Settlement sum) to 0.35x; iii) allows the entry of new institutional investors into the Group. The ‘cons’ are: i) EPS dilution in the region of 6-8% (depending on the size and timing, and income generated from interest-bearing instruments; ii) erosion in ROE of circa 0.3ppts and net assets per share by RM0.23.

Reiterate SELL, Price Target Remain Unchanged at RM2.90

We maintain our SELL rating, with our PT unchanged at RM2.90 (based on a 0.5x P/BV on CY22E BVPS). We are awaiting further feedbacks from an upcoming briefing by AMMB. Our assumptions for FY21E/22E/23E: loan growth at 4.0-5.0%; NIM at 1.81-1.83, net credit cost at 90/82/82bps and CIR at 46-49%. Upside risks: interest rate hikes; lower impaired loan provisions.

Source: Affin Hwang Research - 2 Apr 2021