PETALING JAYA: The time is right for AMMB Holdings Bhd (AmBank) to engage in merger and acquisition (M&A) talks with potential suitors, the research unit at Kenanga Investment Bank said today.
Kenanga Research said AmBank’s current fundamental outlook and the prevailing macro-economic climate “could present a more palatable opportunity” for a merger.
It has maintained an “outperform” call on AmBank with a target price of RM5.05.
Just over a year ago, the market was awash with discussions on possible merger talks between AmBank and RHB Bank as well as a potential acquisition of a stake in AmBank by Grab Holdings Ltd.
However, AmBank chairman Azman Hashim dismissed the proposals as “just market talk”.
Kenanga said the discussions reached a deadlock over pricing and potential changes in the operating environment.
“The prospects for talks of consolidation could be brighter (now),” the research outfit added.
Kenanga said the banking sector’s performance was marred by moratoriums and repayment assistance programmes put in place during the Covid-19 pandemic to help borrowers.
It said the initiative has led to a deterioration of asset quality and curtailed economic activities.
“At present, we believe a sense of confidence has been reinvigorated in this space, particularly as impairment needs have rationalised. While loan growth may see some challenges in line with GDP expectations, we opine its resilience has been proven,” it said.
The AmBank group’s RM2.93 billion one-off global settlement payment to the ministry of finance in 2021 had affected AmBank’s price-to-book value (PBV), which dropped to its lowest point at 0.55 times in July 2021, Kenanga said.
“The heightened uncertainties then even alluded (to the possibility) that AmBank would require a further discount for a (M&A) deal to occur,” it added.
Kenanga said AmBank had reverted to historical levels of 0.70 times forward PBV from a sectorwide de-rating, owing to unfavourable developments in the global banking scene.
It said a 0.70 times PBV valuation price tag would be a more “acceptable price” for stakeholders.
Given the stronger labour market now, Kenanga said, stakeholders would be more open to the idea of banking consolidation that would ultimately bring long-term benefits to the economy.
The risks include higher-than-expected margin squeeze, lower-than-expected loans growth, worse-than-expected deterioration in asset quality, slowdown in capital market activities, unfavourable currency fluctuations, and changes to the overnight policy rate (OPR).
At 12.10pm AmBank’s shares edged up six sen or 1.67% to RM3.66, valuing the group at RM12.13 billion.