This article first appeared in The Edge Malaysia Weekly on November 4, 2024 - November 10, 2024
AS the sixth largest of Malaysia’s eight domestic banking groups in terms of assets, AMMB Holdings Bhd (AmBank Group) (KL:AMBANK) is considered a mid-sized lender.
Its relatively smaller size, and the fact that there is often talk that its key shareholder — founder Tan Sri Azman Hashim — may be amenable to parting with some of his shares if he fetched a good price for them, means one cannot discount the possibility of a merger and acquisition (M&A) happening down the road, analysts say.
“One cannot rule out the possibility of M&A at AmBank because it is very much mid-sized and I think there is a case for it to be larger,” a senior banking analyst tells The Edge. Larger banks enjoy better economies of scale and are able to compete better in the highly competitive industry, in which margins have shrunk over the years.
Be that as it may, any merger with a rival bank would have to make sense, especially since revenue synergies will be few while cost synergies will take much time to realise, the analyst adds.
Tushar Mohata, head of equity research at Nomura Securities, wrote in a June report: “The [group] remains a long-discussed M&A target, due to its relatively smaller size, sub one-time price-to-book (PBV) valuation and fundamental improvements seen over the last few years.”
AmBank Group’s largest shareholder is the Employees Provident Fund (EPF), which also holds substantial stakes in almost all of the country’s listed banks. EPF held a 13.68% stake as at Oct 28. The provident fund is also the largest shareholder in RHB Bank Bhd (KL:RHBBANK) (39.19%) and MBSB Bank Bhd (57%).
Azman’s 11.83% stake — which is based on his total holdings of 391.07 million shares via AmCorp Group Bhd as at June 28, according to AmBank Group’s latest annual report — makes him the second largest shareholder.
Nevertheless, analysts note that AmBank Group could very well stand on its own. The group in June laid out a five-year strategy dubbed “Winning Together” (WT29), under which it outlines six areas it plans to focus on for growth, a key one being a reliance on small and medium enterprises (SMEs) and mid-level corporates to drive lending and earnings growth.
In an interview with The Edge, group CEO Jamie Ling says the WT29 strategy is based on organic growth, and there is no plan to acquire any business or attempt a bank merger.
“We are focusing on our own growth, and if we can achieve a good set of results, then it proves that we are delivering on returns,” he notes.
Nevertheless, AmBank Group would be open to considering any opportunities that came its way “if there’s value” to it.
Asked about market speculation that Azman may be having exploratory talks with certain parties with a view to a merger, he says: “That is a matter for shareholders.”
To be sure, the prospect of an M&A was stronger back when Australia and New Zealand Banking Group Ltd (ANZ), the former largest shareholder, had been looking for buyers for its 21.67% stake. Having tried for years, ANZ finally offloaded the stake via block trades — first, by 16.5% in March, then by 5.17% in early June — at a discount to its then market price, and exited the group.
“It would have been easier back when ANZ was in the picture,” an analyst notes, pointing out that ANZ’s stake, combined with that of Azman and EPF, could have provided a sizeable block for potential suitors looking to trigger a merger.
“But, obviously, that ANZ eventually sold its shares via block trades at a discount meant that there had been nothing on the table with regard to M&A proposals, and it gave up waiting for any merger option to exit.”
ANZ fetched over RM2.1 billion (or RM3.85 a share) for the March sale and RM701.16 million (or RM4.10 a share) for the June sale.
The last time AmBank Group considered a merger was in June 2017. The group and RHB had decided to explore a union, but called off talks after three months as they could not agree on mutually acceptable terms and conditions. Interestingly, a preliminary attempt by key shareholders of the two banks in mid-2015 also did not come to pass.
Azman’s shares in the lender are worth RM1.98 billion based on the stock’s closing price of RM5.06 on Nov 1. At that price, the lender has a market capitalisation of RM16.75 billion.
AmBank Group, which turns 50 in August next year, has seen strong earnings growth in recent years. After having slipped to a net loss of RM3.83 billion in the financial year ended March 31, 2021 (FY2021) as a result of having to pay the government a massive RM2.82 billion global settlement for the group’s historical dealings with 1Malaysia Development Bhd and related entities, AmBank Group bounced back strongly with a net profit of RM1.5 billion in FY2022 and RM1.71 billion in FY2023. Its net profit of RM1.87 billion in FY2024 was the highest in a decade.
Bloomberg data as at Nov 1 showed that 12 analysts have a “buy” call on the group’s stock, while three have a “hold” recommendation. There were no “sell” calls. The average 12-month target price was pegged at RM5.64.
The counter has gained a solid 31.2% year to date.
“Despite the recent price run-up, we still find that [AmBank Group’s] risk-reward profile is tilted to the upside. We believe the bank will continue to post resilient profit in the upcoming quarter [ended Sept 30], backed by sequential net interest margin expansion, faster loans growth and steady non-interest income.
“Besides, the adoption of foundation internal rating-based model in August could potentially lift its CET1 ratio by 1.5 to 2 percentage points and thus, creates scope for a larger dividend payout,” Hong Leong Investment Bank Research said in an Oct 22 report.
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