ABMB is proposing to dispose its stock-broking business to Philip Futures Sdn Bhd under a conditional agreement, expected to be completed by 1HCY22. As the group’s market share in stock-broking activities is insignificant compared to its peers, we do not think this will, in any way, dent its prospects. However, funds raised could help accelerate its growth strategies for core businesses. We leave our assumptions unchanged for now. Maintain MP and GGM- derived PBV of RM2.65.

On 2nd Dec 2021, ABMB entered into a conditional business sale and purchase agreement with Philip Futures Sdn Bhd (Philip Futures) to dispose its stock-broking business (Proposed Disposal). The total consideration of the Proposed Disposal has yet to be determined, although it will be transacted based on an aggregate of:

• cash equal to the net asset value of the Stock-broking Business as at the completion date of the Proposed Disposal (3QCY21: RM205.2m);

• cash equal to 60% of the aggregate brokerage fee in respect of all brokerage transactions concluded by Philip Futures in respect of the 12- month period from the specified transfer point until the date that is the 12-month anniversary of the completion date (less the brokerage transaction costs); and

• less an amount in cash equal to the receivable shortfall.

The Proposed Disposal will allow the group to reprioritise its businesses to accelerate growth consumer, SME and Islamic banking businesses going forward.

We are positive on the deal as the funds raised would assist the group with its growth strategies outlined, particularly within the SME space. Additionally, we believe the group’s presence in the stock- broking space is rather inconsequential relative to its peers; hence, it could be worth a greater while to focus on higher-return business streams. According to Bursa Malaysia’s Broker Ranking for Nov 2021, ABMB is unranked (top 15 are ranked) with regards to the month’s trading value due to its minute contribution.

With regards to the implied valuation of the deal, a 1.0x NAV consideration is fair in our opinion. In 2012, Kenanga Investment Bank sought to purchase ECM Libra Financial Group Bhd’s investment banking and stock-broking businesses for RM875m at an implied 1.27x PBV. Considering the passiveness of stock-broking at present times in addition to the absence of its investment bank in the deal, the discount seems justified. On the flipside, the 1.0x valuation is still better than our applied multiple to the group’s stock value at 0.6x. This is on top of the additional value brought from the clause on brokerage fees above.

Post update, we leave our earnings assumptions unchanged for now, until the completion of the deal. The impact from the loss of the business unit is not expected to be significant. In FY21 the Stock-broking business with the group’s Corporate Advisory division only contributed <3% to PBT.

Maintain MARKET PERFORM and TP of RM2.65. Our call is based on an unchanged GGM-derived PBV of 0.60x (1SD below mean) on its CY22E BVPS of RM4.42. We were previously cautious on the stock due to its low risk-to-reward but with the resumption of dividends to pre-Covid levels, the stock is a considerable proposition in our books. That said, it remains to have the highest SME mix amongst its peers which could be a cause of concern for cautious investors.

Source: Kenanga Research - 6 Dec 2021