AMMB’s private placement to have dilutive effect

Impact of the dilution will depend on the final number of placement shares to be issued, says MIDF Research

By HARIZAH KAMEL / Pic By MUHD AMIN NAHARUL

AMMB Holdings Bhd’s proposed private placement will not have any impact to the group’s financial year 2021 (FY21) or FY22 earnings, except for the potential dilution in earnings per share (EPS) and book value per common share (BVPS).

MIDF Amanah Investment Bank Bhd (MIDF Research) head of research Imran Yassin Md Yusof said the impact of the dilution will depend on the final number of placement shares to be issued.

“Based on our forecast of the group’s FY22 earnings, we foresee a decline of 9% to its EPS and BVPS due to the dilutive effect. This will lead to a potential 9% fall to our target price (TP) from RM2.75 to RM2.50,” he said in a note last Friday.

MIDF Research has maintained its ‘Trading Sell’ call on the banking group with an unchanged TP of RM2.75 based on AMMB’s FY22 BVPS price to book value of 0.5 time, as well as maintaining its earnings forecast for now pending.

“In our opinion, it is a shame that the group has been hit with the global settlement as it has navigated well the tough operating environment brought upon by the Covid-19 pandemic.

“We believe the two proposed exercises are in relation to this. The dilutive effect of the proposed private placement is short-term negative in our opinion,” said Imran Yassin.

On April 1, AMMB announced it is undertaking a proposed private placement of up to 300 million new ordinary shares, representing 9.97% of its existing issued ordinary share capital, excluding treasury shares.

The group said investors will be identified at a later date, and the issue price shall be fixed at a discount of not more than 10% to the volume-weighted average price of AMMB shares for the five market days immediately prior to the price-fixing date.

The group stated that the proceeds from the private placement shall be used for working capital purposes, including injection of capital into the group’s operating subsidiaries and expenses relating to the exercise.

MIDF Research believes the exercise aims to raise funds to help pay the RM2.83 billion settlement with the government.

The group will be assessing the carrying value of goodwill relating to certain lines of business with potential of an impairment.

A goodwill write-down is a non-cash item, will have no impact to regulatory capital ratios and does not affect future earnings as it is a non-recurring item.

This review will be more focused on the goodwill relating to conventional banking (RM1.49 trillion) and investment banking (RM428 million).

Public Investment Bank Bhd has also maintained its ‘Trading Sell’ call and TP for AMMB.

“While the current moves (placement and goodwill impairment) are long-term positive to the capital position of the group, we maintain our call with an unchanged TP of RM2.60 given the current near-term challenges.

“We keep our estimates unchanged at this juncture pending further clarity from management,” the investment bank noted.

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