News  Yesterday, AMBANK confirmed that Mr Ashok Ramamurthy will be stepping down as Group MD while Ms Pushpa Rajadurai, MD of Wholesale Banking (Coverage), Mr Kok Tuck Cheong, MD of Wholesale Banking (Products) and Ms Mandy Simpson, Group CFO will continue to serve the bank as per their existing contracts.  We understand that Mr Ashok will be re-joining his family in Melbourne, Australia and resume a senior executive role with Australia and New Zealand Banking Group Ltd (ANZ).

 As part of the bank’s succession planning, the Board has already started the process of identifying a replacement. Until the new Group MD arrives, Mr Ashok remains in charge of AMBANK’s day-to-day affairs.

Comments  All in, we do not foresee any major leadership transition risk as the new Group MD will likely come from ANZ, which in turn, helps to preserve the vision of the company. Furthermore, ANZ has affirmed to be a committed strategic partner of AMBANK.

Outlook  We continue to see structural and cyclical headwinds such as: (i) muted loans growth, (ii) narrowing NIM, (iii) weak capital market activities, and, (iv) higher credit costs, persisting into 2015.

 Increasing competitive pressure on its general insurance business, come 2016, when the industry turns to a de-tariff market.

 We opine that its ROE target for FY15-FY17 of 14% is a tall order to achieve. AMBANK’s annualised core ROE was only 10% as at 1HFY15.

Forecast  No changes were made to our forecasts.

Rating Maintain MARKET PERFORM  We opine that the above-mentioned negatives are largely priced-in at current price. To note, we have already taken them into consideration in our model and FV computation.

Valuation  Our TP of RM6.75 based on 1.37x CY15 P/B is maintained. The P/B multiple is derived using the Gordon Growth Model (GGM), where we utilised: (i) COE of 9.2%, (ii) FY15 ROE of 11.9%, and (iii) terminal growth rate (TG) of 2%. This can be justified by its lower ROE generation moving forward vs. its historical ROE of more than 14% for the past 2 years.

Risks to Our Call  Steeper margin squeeze

 Slower-than-expected loans growth

 Worse-than-expected deterioration in asset quality.

Source: Kenanga