Maintain “underweight”: AMMB Holdings Bhd is the most likely candidate for the next bank merger based on the recent press reports stating that its major shareholder, The Australia and New Zealand Banking Group Ltd (ANZ), may have to divest its stakes in other banks to meet higher capital requirements. We also see the possibility of a merger between Public Bank Bhd (PBB) and Hong Leong Bank Bhd (HLB) due to the former’s succession uncertainties and latter’s ambition to be a bigger bank. We are positive on the potential merger between PBB and HLB, given the potential merger synergies.
There could be merger and acquisition (M&A) activities brewing at AMMB, given the news flow that ANZ plans to divest its stake. We think that a non-Malaysian bank entity is the most likely buyer for ANZ’s stake as we do not see a strong strategic rationale for a bank merger. If banks are required to merge under any directive by the central bank, we think that Malayan Banking Bhd would be the most likely suitor for AMMB due to its interest to expand in the auto financing market. Affin Bank Bhd may be keen but its low price-to-book value (P/BV) would be a hindrance.We think that any M&A activity involving PBB and HLB would take the form of a merger, rather than an acquisition. We remain “underweight” on banks. Our base case assumes that there will not be industry-wide mergers. We will review our calls on the banks involved if they occur. — CIMB Research, Oct 16
This article first appeared in The Edge Financial Daily, on October 17, 2014.