Analysts mostly neutral on potential RHB-AMMB merger

PETALING JAYA: Most analysts are neutral on the proposed merger between RHB Bank Bhd and AMMB Holdings Bhd as they highlighted the importance of deriving cost synergies from the merged entity.
AllianceDBS Research viewed the merger as neutral at best.
“We can at best view this proposed merger as neutral. Apart from size, it would appear that the merged entity would need to extract a lot of cost synergies. To start with, its branch network, staff and possible overlap in businesses would need to be assessed,” it said in a report.
The research house is reinstating its ratings and target prices for AMMB and RHB, keeping its hold recommendation on RHB with a target price of RM4.90, and downgrading AMMB, which operates the AmBank financial group, to hold but with a higher target price of RM5.40.
Kenanga Research said the new entity will be slightly superior against its top peers in terms of return-on-equity (ROE) and capital adequacy ratio and the expected better value for the merged entity will fetch a better price for Australia and New Zealand Banking Group Ltd, a shareholder of AMMB, to exit.
“As the proposed merger is yet to be cast in stone, we refrain from making any ascribed value for RHB and we are neutral on the proposed merger at this point,” Kenanga said.
MaybankIB Research is neutral to slightly positive on the potential RHB-AMMB merger. It said merger valuations are decent and the impact on financials is expected to be marginal.
“The success of this merger will nevertheless very much depend on driving revenue/cost synergies as quickly as possible. One risk is of a potential share overhang post-merger, which could be mitigated if a strategic shareholder can be identified.”
It maintains its hold call on RHB and AMMB, with target prices of RM5.45 and RM5.25 respectively.
MaybankIB said based on its scenario analysis, the impact to RHB’s financials postmerger (assuming RHB as the acquirer) would be marginal, with an estimated 4-5% dilution to FY18/FY19 earnings per share, 3-6% dilution to book value per share and ROEs would be relatively unchanged.
“There are more cost synergies than revenue synergies to be derived, in our view. Cost synergies could be derived from the rationalisation of bank branches and corporate/investment banking operations.
“Revenue synergies could be derived from a larger insurance division, the lowering of funding costs at AmBank and an enlarged Islamic banking group,” said MaybankIB.
PublicInvest Research said with no other details offered other than an Aug 30 deadline for the expiry of the exclusivity agreement and indications that this merger will involve an all-share swap, it reserved conclusive comments until more details are revealed.
“While we can postulate to no end on potential benefits (synergies, scale) or costs (redundancies, etc) and/or challenges (business overlaps, etc), this deal could be one that is likely to go through based on the reported willingness of most major shareholders to sit at the table, appropriate pricing notwithstanding.”
In its report on AMMB, PublicInvest said it is retaining its trading buy call on the stock for its earnings prospects as-is and its target price is unchanged at RM5.40.
RHB shares fell 20 sen to close at RM5.19 last Friday, while AmBank’s share price ended 12 sen lower at RM5.09.