AMMB announced that it has entered into a conditional share sale agreement with MBF Holdings Berhad and its wholly-owned subsidiaries Atox Cards SB and Jastura SB, for the proposed acquisition of an aggregate 100% equity interest in MBF Cards (M) SB for a total cash purchase consideration of RM623.4m, to be funded via internally generated cash and borrowings.

A tad expensive, but banking on the synergies. The acquisition sum of RM623.4m - which equates to a relatively expensive PBV of 2.9x - will result in goodwill of RM411.1m. At first glance, the acquisition looks relatively pricey, with the ROE of 23% being largely in line with the industry's credit card average profitability metrics but at a premium valuation to the industry. However, we believe that this acquisition makes commercial sense and may give rise to synergies compared with the group's proposed acquisition of Kurnia Asia earlier. Note that the acquisition price includes a 33.3% equity stake in Bonuskad Loyalty SB, which may create cross-selling opportunities. The acquisition is expected to increase AMMB's credit card receivable base from RM1.7bn to RM2.3bn (top 6 in Malaysia) and merchants-in-force from 10,000 to 45,000 (top 3 in Malaysia). We estimate a marginal 40bps impact on the group's Tier 1 core equity capital ratio arising from the goodwill, which the group can well absorb without needing to initiate an equity cash call.

Maintain NEUTRAL. Pending more details on the funding structure of the acquisition and given the relatively immaterial immediate impact on earnings, we are maintaining our fair value at RM7.07, which implies a FY13 P/BV of 1.68x (ROE: 14.1%, Growth: 4%, COE: 10%). Maintain NEUTRAL.