kimeng: 11 apr AMMB (buy)

Opportunity to pile in at below ANZ's entry cost
Medium-term investors wishing to bet on the transformation of AMMB Holdings
(AHB) can now buy the shares at below Australia & New Zealand Banking Group
Ltd's (ANZ) entry cost of around RM3.57, giving no value to ANZ's role as a
strategic partner. ANZ now owns 19.2% of AHB, and will hold 24.6% upon the
conversion of RM575m of exchangeable bonds into 194.9m shares at an
exercise price of RM2.95. Earlier, ANZ bought 300m AHB shares from Amcorp
at RM4.30 in Mar 2007, subscribed to RM58m Rights shares at RM3.40 in Jan
2008 and converted its preference shares (investment cost: RM0.5b) into
163.9m shares on 19 Mar 2008. AHB is important for ANZ as it is ANZ's
single largest investment in Asia (costing RM2.6b). Unlike other foreign
partners in Malaysian banks which are largely confined to board
representation, ANZ has strong influence in AHB, both at the board and
management levels. Besides 3 board members (out of 12 directors), ANZ has 3
senior management positions (Deputy Managing Director, Chief Financial
Officer, Chief Risk Officer), 5 management positions (head of retail
distribution, head of retail strategy, credit risk, senior HR consultant
and project manager). ANZ staff members are also seconded to forex and
treasury on a project basis.

Aiming high: doubling earnings & ROE of 20% by 2011
AHB is targeting a doubling of 2007 underlying profit after tax
(translating to a CAGR of 20%) and a ROE of 20% by 2011, with revenues to
be largely driven by the retail and corporate banking operations. AHB is
completing an internal re-organisation to streamline group operations into
4 major entities, namely banking, asset management, capital market and
insurance in Apr 2008 to facilitate cross-selling. The insurance business
is also expected to increase its contribution to Group profit to 10%,
following the completion of the on-going restructuring to split into
separate life and general insurance entities and the proposed acquisitions
of MAA's general and takaful businesses. Over the same period, it aims to
cut its net NPL ratio to 2%, provision charged to P&L to 1% and cost-income
ratio to 40%. With that, AHB will be in a position to have a more generous
dividend payout of more than 25% of net profits as dividends after FY09.