AMBANK's proposed disposal of its stake in AmMetLife to Great Eastern was called off yesterday. We do not anticipate a negative reaction from this development in spite of losses from this unit, as the group had so far been able to churn better fundamentals following recent implementations to its long-term strategies. Maintain our OP call and GGM-derived PBV TP of RM6.40. AMBANK is one of our Top Picks for 1QCY25.

Yesterday, AMBANK announced that its proposed disposal of AmMetLife Insurance Bhd (AMLI) and AmMetLife Takaful Bhd (AMLT) to Great Eastern has been terminated. The deal which was announced in Oct 2023, would have otherwise entailed a RM1.12b consideration for AMBANK's entire 50% stake held in both AMLI and AMLT.

Overall, we are neutral on this development. We opine that the previous intent for the disposal was for AMBANK to reoptimize its portfolio of underperforming business units to be reallocated into more accretive drivers. In FY23 and FY24, AMLI and AMLT collectively brought associate losses of RM10.5m and RM12.6m, respectively. Eliminating these losses on a group level would only result in less than 1% impact on earnings.

We opine that the group's FY29 strategic plan do not hinge on the additional capital which would have arisen from the disposal, as the group's initiatives appear to heavily rely on realignment of target groups i.e. to be more retail funded for more SME lending.

That said, we estimate the disposal would have been helpful to inject an additional 100 bps to its 15.3% CET-1 ratio and allow greater flexibility to pay special dividends. For now, we believe AMBANK would still be able to gradually increase its dividends organically, with our imputed 50% payout (from FY24's 40%) firmly supporting CET-1 at 14.7%. From our previous engagement, the group indicated its minimum threshold to be 14.0%, thus remaining at a comfortable range. Given the lack of earnings impact or immediate need for capital, we will not be surprised if AMBANK opts to maintain AMLI and AMLT operations within the group in the medium term.

Forecasts. Unchanged as we had not assumed the completion of the deal in our forecasts.

Maintain OUTPERFORM and TP of RM6.40. Our TP is based on an unchanged GGM-derived PBV of 1.02x (COE: 9.9%, TG: 3.0%, ROE: 10%) against our CY25 BVPS of RM6.27. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us.

We believe a 10% ROE for AMBANK could be realizable in FY26 as it progressively builds a larger portfolio of SME accounts supported by the rebalancing into cheaper funding sources along the way. While our applied dividend pay-out remains modest at 50%, assuming the group is to immediately reflect an aspired pay-out of 60%, prospective dividend yields of 6%-7% would make them the top payer as of the date of this report. AMBANK is one of our Top Picks for 1QCY25.

Risks to our call include: (i) higher-than-expected margin squeeze, (ii) lower-than-expected loans growth, (iii) worse-than-expected deterioration in asset quality, (iv) slowdown in capital market activities, (v) unfavourable currency fluctuations, and (vi) changes to OPR.

Source: Kenanga Research - 4 Feb 2025