AMMB - BUY

AMMB Holdings – Deep in value (Initiating Coverage)



Price: RM2.43

Target Price: RM2.90

Recommendation: BUY



Attractive valuation proposition, with catalysts – Initiate with Buy

Deep value – AMMB trades at 0.7x 2010E P/BV. We do not believe that the discount to book value is justified. We forecast that AMMB can deliver a sustainable return on equity of 11.5% in the immediate future and potential stronger earnings growth than its Malaysian peers.

Is it already priced in? – With P/B valuations for AMMB trading around 2 standard deviation below its 5-year mean, we use Gordon Growth model valuation approach to estimate the implied ROE which will have an impact on valuation going forward. The bank offers a dividend yield of 9%, which is the highest among others.

Catalysts – We see three positive catalysts: 1) the lucrative dividend payout on excess capital; 2) the achievable ROE targets; and 4) turnaround of the investment banking business.

Top pick in Malaysia – We initiate coverage of AMMB with a Buy recommendation and RM2.90 target price. In addition to 30% discount to book value, we prefer AMMB relative to its peers due to: 1) its strong shareholder, ANZ, to weather the storm and 2) a RM5.1bn excess capital as capacity for capital management initiative.