The prospect of a merged entity between AMBANK and RHB seems mouth-watering, creating the 4th largest domestic banking entity. EPF will still be the winner being the largest shareholder in the new entity while the positions of ANZ and Aabar would be reduced significantly.

Trading of AMBANK and RHBBANK shares suspended. Yesterday, both AMBANK and RHBBANK requested the suspension of trading in their shares pending a material announcement. The announcement by the two banks released yesterday in two separate filings with Bursa Malaysia sparked renewed speculation of a potential merger between the two banks.

4th largest banking entity. The new merged entity would create the 4th largest domestic bank in term of asset, slightly behind Public Bank. In almost all aspects (see below), the new entity will be the 4th largest banking entity after Maybank, CIMB and Public Bank.

Slight edge in terms of profitability. Based on the banks financial year end results, the new merged entity will have a slight edge in terms of profitability pushing it to 3rd place. Its gross impaired loans ratio will be lower than Maybank and CIMB, both at 2.28% and 3.29%, respectively. Cost-to-Income ratio better than CIMB at 53.0% vs 54.4%. The new credit costs will be low at 0.17% after Public Bank (the lowest) with its Capital ratios stronger after Maybank. (see Table 9). Despite the overlap in certain areas such as mortgages and SME’s, the new entity will be bring synergy on the revenue front. AmBank is strong in insurance with RHB more well regarded in investment banking. In terms of loans, Ambank are more into the HP market and bridging loans for corporations whereas RHBBANK is more on consumer loans i.e. mortgages etc.

EPF still the winner. Assuming the new entity is merged on a share swap basis, EPF being the largest shareholder in RHBBANK (at 40.7%) will still be the largest shareholder in the new entity at 29.1%. The positions of ANZ and Aabar Investments in the new entity are estimated to be likely lower at 10.2% and 10.1%, respectively. With its position reduced in the new entity, the likelihood of a selling its stake in AMBANK looks inevitable. Despite the overlap in certain areas such as mortgages and SME’s, the new entity will be bring synergy on the revenue front. AmBank is strong in insurance with RHB more well regarded in investment banking. In terms of loans, Ambank are more into the HP market and bridging loans for corporations whereas RHBBANK is more on consumer loans i.e. mortgages etc. As details are yet to surface, we maintain NEUTRAL at present.

Source: Kenanga Research - 1 Jun 2017