KUALA LUMPUR (April 2): Analysts are negative on AMMB Holdings Bhd's (AmBank) private placement plan due to its earnings dilutive effects.

CGS-CIMB Research analyst Winson Ng said AmBank’s proposed private placement was a negative surprise as the bank did not guide for any plan for private placements, and previously stated that it had enough capital buffers to absorb the RM2.83 billion provision for the 1Malaysia Development Bhd (1MDB) settlement.

“Based on our calculations, we estimate that the private placement would dilute its earnings per share (EPS) by 4% for the financial year ending March 31, 2022 (FY22) and 8.3% for FY23, based on the assumed issue price of RM2.70.

“The dilution is assessed by us to be high because AmBank is trading at a low end-FY21 price-to-book value of 0.55 times, and the yield for proceeds from the private placement is low (assumed by us to be 1.94%) amid the low interest rate regime,” he added in a note.

On the impairment of goodwill, he opined that a 10% impairment of goodwill would increase his projected FY21 net loss of RM1.77 billion (due to the provision of RM2.83 billion for the 1MDB settlement) by about 8.2%.

Thus, he retained his "reduce" call on AmBank, with an unchanged target price (TP) of RM2.67.

Following its RM2.83 billion settlement with the government in relation to the 1MDB scandal, AmBank proposed a private placement to issue up to 300 million shares to raise an estimated RM810 million.

The group also announced an impairment of goodwill of RM2.09 billion for the fourth quarter ended March 31, 2021 (4QFY21), which mainly comprises consolidation of previous acquisitions and corporate exercises of its conventional businesses.

Kenanga Research analyst Clement Chua also said the group’s private placement plan came as a surprise as its management previously assured that the group possessed sufficient capital buffers.

“We are negative on the news, mostly from the new shares’ dilutive effects and downgrade our call to 'underperform' with a lower TP of RM2.40 (from RM3.05) while also accounting for cuts in our book value assumptions,” he added.

Chua said it will be interesting to see as to whom these new shares will be placed out to as the announcement specified that the placement is “expected to facilitate the entry of new institutional investors into the group".

Meanwhile, MIDF Research analyst Imran Yassin Md Yusof said based on his forecast of the group’s FY22 earnings, he foresees a decline of 9% in its EPS and book value per share due to the dilutive effects.

“This will lead to a potential -9% in our TP (from RM2.75 to RM2.50),” he added.

As the dilutive effects of the proposed private placement are short-term negative, he maintained his "trading sell" call on AmBank, with an unchanged TP of RM2.75.

Maybank Investment Bank Research analyst Desmond Ch'ng said AmBank's potential goodwill write-off announcement was expected, but its proposed private placement came as a surprise.

“Positively, AmBank’s potential goodwill write-off will enhance its future return on equity (ROE), while its proposed private placement could shore up its common equity tier 1 to about 11.7% from 11%. In the near term, though, there may be a share overhang ahead of the placement exercise,” he said.

He maintained "hold" and an unchanged TP of RM3.40 for AmBank.

At 10.44am today, AmBank had fallen four sen or 1.33% to RM2.96, valuing the group at RM8.8 billion.