Affin-AMMB merger will be dilutive due to significant new shares issuance
KUALA LUMPUR: CIMB Securities Sdn Bhd expects the potential merger between Affin Bank Bhd and AMMB Holdings Bhd to entail significant issuance of new shares, which will likely be quite dilutive.
In a note today, CIMB Securities said it assessed two possible merger scenarios for Affin and AMMB, although itwasnot particularly enthusiastic about the merger.
"A merger between two domestic banking entities would necessitate the acquisition of the entire stake, given that banks are not allowed to hold two banking licenses.
"If Affin acquires AMMB at a price-to-book value ratio (P/BV) of one time, Affin will need to issue a significant 7.7 billion new shares at the current market price of RM2.60 to acquire 100 per cent of AMMB,' it said.
CIMB Securities said the scenario would mean a several-fold increase in Affin's issued shares to 10.25 billion from 2.5 billion shares currently.
On the other hand, it said the second scenario would see AMMB acquiring Affin at a P/BV of one time, which would still lead to a significant 63.8 per cent increase in AMMB's issued shares base.
"AMMB's target price would decline to RM4.27 (current: RM5.70) based on a return on equity of 7.8 per cent (current: 8.6 per cent) and a fair P/BV of 0.7 times (current: 0.9 times).
"The target price may be increased if AMMB were to buy Affin at a P/BV of 0.6 times or lower (implying an acquisition share price of only RM2.75 or lower for Affin), which may lead to AMMB's target price moving up to RM6.35 for the financial year 2026,' it said.
However, CIMB Securities noted that an excessively low acquisition price for Affin's shareholders may be deemed unpalatable by Affin's minority shareholders.
Recently, news reports indicated that the Sarawak government may be looking to buy a stake in another bank and merge it with Affin, and AMMB's major shareholder has reportedly been approached.
The Sarawak government has since denied sending any government representative to discuss the matter with Amcorp Group Bhd, but it is reported that it remains open to negotiating with any entity that wants to collaborate with the state government. - Bernama
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