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AMBANK (1015) - AMMB Holdings - Looking for a new guard


Target RM6.70 (Stock Rating: HOLD)

AMMB confirmed that its Group MD, Mr. Ashok Ramamurthy will step down. We believe that the change of Group MD will have some negative impact on the implementation of the group’s strategic thrusts. However, we think that the impact would not be significant as (1) apart from the Group MD, the management team is intact, and (2) Mr. Ashok will stay until the group comes out with a proper transition plan. We retain our DDM-based target price (COE of 10%; LT growth of 4%). Despite the undemanding valuation, AMMB remains a Hold given the concerns over margin contraction, weak loan growth and a rise in credit costs. We prefer RHB Capital.
What Happened
In an announcement to the Bursa, AMMB Holdings confirmed that Mr. Ashok Ramamurthy will step down as the Group MD to rejoin his family in Melbourne and ANZ as senior executive. However, Ms. Pushpa Rajadurai, MD of Wholesale Banking, Coverage, Mr. Kok Tuck Cheong, MD, Wholesale Banking, Products and Ms. Mandy Simpson, Group CFO will continue to serve the group in accordance with their existing contracts. Mr. Ashok will remain in charge until a proper transition has been worked out for the new Group MD.

What We Think
We see this as a negative surprise as Ashok has been contributing to the group’s transformation programme since the entry of ANZ as a major shareholder of AMMB in 2007. The change in MD would have some negative impact on the implementation of its strategic thrusts. However, we are positive on the fact that other key members of the management team will stay with the group and Ashok will continue to run the group until it has found a new Group MD. We also think that the negative impact would not be significant for AMMB because (1) ANZ is still in control of setting the strategic direction for the group, (2) apart from the Group MD, the management team is intact, and (3) Ashok will remain in charge of the bank until it has a proper transition plan in place.

What You Should Do
Despite the undemanding valuation of 10x FY16 P/E, we advise investors to stay on the sidelines given the concerns over (1) its tight liquidity, (2) weak loan growth, and (3) an expected upturn in credit costs. Another potential risk factor is the departure of the Group MD, though we believe that the impact would not be significant.

Source: CIMB Daybreak - 30 January 2015
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