Kenanga Research said it was “neutral” on the development.
PETALING JAYA: The termination of the proposed sale of AMMB Holdings Bhd’s (AmBank) Malaysian insurance businesses, which it jointly-owned with MetLife International Holdings LLC to Singapore insurer Great Eastern Holdings Ltd, will have a negligible impact on the former’s capital ratios.
According to analysts, AmBank’s Common Equity Tier 1 (CET-1) ratio is a healthy 15.3% and contributions of the insurance businesses to group earnings are negligible.
On Monday, AmBank said its proposed disposal of AmMetLife Insurance Bhd (AMLI) and AmMetLife Takaful Bhd (AMLT) to Great Eastern had been called off.
The deal, which was announced in October 2023, would have otherwise entailed a RM1.12bil consideration for AmBank’s entire 50% stake held in both AMLI and AMLT.
According to Maybank Investment Bank (Maybank IB) Research, the disposal was estimated to have enhanced AmBank’s CET-1 capital by about 50 basis points (bps), which would have initially served to buffer against any capital setback from Basel III.
“However, we understand that the Basel III impact is assessed to be much less now and thus, there would be a negligible effect on the group’s CET-1 ratio, which now stands at a very healthy 15.3% as at end-September 2024.
“That said, we believe AMMB may still be on the lookout to dispose of the insurance units, though there is less urgency at this stage,” the research house said in a report yesterday.
Maybank IB Research noted that in the financial year ended March 31, 2024 (FY24), AML made a net profit of RM36.4mil, while AMLT made a net loss of RM12.6mil.
“Cumulatively, the two units contributed to a negligible 0.6% of AmBank’s group earnings in FY24.
“We forecast group earnings growth of 11.7% in FY25, driven by better net interest margin and lower credit cost, which should offset our expectation of lower non-interest income,” the research house said.
It maintained a “buy” call on the stock with an unchanged target price of RM6.30 based on a target price-to-book value (PBV) of 0.98 times for 2025.
AmBank is one of the research house’s top stock picks for the banking sector.
Meanwhile, Kenanga Research said it was “neutral” on the development as the group’s strategic plan does not hinge on the additional capital which would have arisen from the disposal.
While it would have allowed greater flexibility to pay special dividends, it said AmBank would be able to gradually increase its dividends organically, with its imputed 50% payout (from FY24’s 40%) firmly supporting CET-1 at around 14.7%.
“From our previous engagement, the group indicated its minimum threshold to be 14%, 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,” Kenanga Research said.
The research house is of the view that a 10% return on equity (ROE) for AmBank could be realisable in FY26 as it progressively builds a larger portfolio of small and medium enterprise accounts, supported by the rebalancing into cheaper funding sources along the way.
“While our applied dividend payout remains modest at 50%, assuming the group is to immediately reflect an aspired payout of 60%, prospective dividend yields of 6% to 7% would make them the top payer as of the date of this report.
“AmBank is one of our top picks for the first quarter of 2025,” it added.
Kenanga Research ascribed a RM6.40 target price on the stock with an “outperform” call.
Phillip Capital Research also reiterated its “buy” rating with a RM6.30 target price.
It said shares of AmBank are attractive – trading at 0.9 times 2025 PBV against a three-year forward ROE of 9.7% with the potential for higher dividends. AmBank is scheduled to release its third quarter FY25 results on Feb 20.