• Ended merger talks with AMMB.

• Missed opportunity to solidify its no. 4 position.

• However, we believe that impact is neutral.

• No change to forecast.

• Maintain NEUTRAL with revised TP of RM5.20 (from RM5.65) as we peg FY18 BVPS to PB multiple of 0.9x.

Merger talks ended. The Group announced yesterday that it had mutually agreed with AMMB Holdings Bhd to end discussions on the proposed merger between the two Groups. Both Groups could not reach an agreement on the terms and conditions. As such the exclusivity agreement will lapse immediately.

Missed opportunity. We view this latest development negatively. We believe that the merger will be beneficial to the Group. It would have solidified the Group’s number 4 position. We had estimated that the total asset of the potential MergeCo to be approximately RM368.3m, which is not far off from its number 3 peer asset size of RM391.1m as at 2QFY17.

But impact is NEUTRAL. Whilst the merger would have put the Group on a stronger footing to effectively compete, we do not foresee any adverse impact from the failure of the merger. This is premised on the fact of the Group’s current asset size and regional exposure. Hence, we believe the impact to be neutral for the Group.

FORECAST

No change to our forecast.

VALUATION AND RECOMMENDATION

All things considered, we are neutral on the latest development. We believe that while it was a missed opportunity, the Group will be able to concentrate on its current initiatives. We maintain our NEUTRAL call for the stock. We are revising our TP to RM5.20 (from RM5.65) as we lower our valuation multiple to PBV of 0.9x which 1 standard deviation below its historical average. We believe this is fair given possible negative sentiment stemming from the news.

Source: MIDF Research - 23 Aug 2017