(Sept 4): Investors want clarity on AMMB Holdings’ future after its proposed merger with RHB Bank was called off, especially since its major shareholder Australia and New Zealand Banking Group (ANZ) intends to sell its stake, say fund managers and head of research houses.

“With this major shareholder wanting to divest and no takers, the road map ahead and future direction are not that clear. As long as there is no clarity on their [AMMB’s] strategy and what ANZ is going to do, investors will not be willing to pay a premium or ascribe to it a valuation that is at par to the industry’s,” Rakuten Trade head of research Kenny Yee tells The Edge.

AMMB, Affin Holdings and RHB Bank are the only banks listed on Bursa Malaysia that are trading below one time their book value at the moment. RHB Bank’s shares, however, have been on an upward trend since news of a possible delay in the merger talks emerged.

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A fund manager who wants to remain anonymous tells The Edge that there should be a reversion for both banks as their share prices have been on the decline since May.

“RHB Bank has rebounded after the announcement that the merger is off. AMMB has other issues as ANZ wants [to make] an exit but there are no takers… it has created some uncertainty among investors. The news of the contingent liability that is apparently linked to 1MDB [1Malaysia Development Bhd] also created a bit of fear in the market,” he says.

“If you look at its price-to-book or even in terms of its latest earnings, I think AMMB has been oversold as a result of the uncertainties. But investors want clarity. So, they [AMMB] need to tell us what the situation with ANZ is and deny the link with 1MDB.”

It is worth noting that AMMB group CEO Sulaiman Mohd Tahir has refuted the existence of contingent liabilities linked to 1MDB in an exclusive interview with The Edge.

Nonetheless, the fund manager points out that in AMMB’s case, the recent selldown gives investors an opportunity to buy in, but he agrees that investors need more clarity before they make their move.

Inter-Pacific Research head of research Pong Teng Siew says the failure of the merger talks was not unexpected given the problems the banks had in arriving at a satisfactory valuation.

He believes investors will stay on the sidelines, as reflected in AMMB’s share price movement. “The big anticipation has always been [for] a merger and acquisition. Without that, I think investors will just take a back seat for a while.” He highlights the fact that AMMB’s share price had crept higher since the end of March, when The Edge reported a possible merger between the two banks.

AMMB’s share price rose 20.9% from RM4.53 at end-March to a oneyear high of RM5.48 on May 2.

Year to date, AMMB and RHB Bank have posted total returns — including dividends — of 5.44% and 9.45% respectively. In comparison, their Malaysian counterparts have an average total return of 14.86%.

CIMB Group Holdings and Malayan Banking have the highest at 52.22% and 20.6% respectively while BIMB Holdings and Alliance Financial Group underperformed AMMB, with total returns of 4.27% and 4.86% respectively.

Since the termination of the merger talks, analysts have updated their reports, saying that it is back to the status quo for both banks.

Bloomberg data shows that out of the 19 analysts covering AMMB, eight gave it a “buy” call while eight recommended a “hold”. Only three of the analysts had a “sell” call. They have set an average 12-month price target for AMMB at RM4.81, representing a potential return of 11.6% against its closing price of RM4.31 on Aug 29.

As for RHB Bank, seven of the 18 analysts covering it gave it a “buy” call, nine had a neutral stance and the remaining two recommended a “sell”. Their 12-month average price target for RHB Bank is RM5.36, indicating an upside potential of 6.1% from its closing price of RM5.05 on Aug 29.

JP Morgan Asia Pacific Equity Research says the lack of consolidation is a net negative for the industry’s profitability in the medium term. “In the near term, we expect Maybank, CIMB, Public Bank and Hong Leong Bank to gain market share at the expense of RHB Bank and AMMB as both entities would have been focused on the execution of the merger,” its analyst, Harsh Wardhan Modi, says in an Aug 23 report. “With the deal being called off, it is likely that the two players will come back into the market with renewed drive, focused on price competition on both sides of the balance sheet.”

Billy Toh is a writer with The Edge Malaysia

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