AMMB Holdings Bhd (“AMMB”) said it had on 10 July 2012 entered
into a conditional sale and purchase agreement to acquire a 100% equity
interest in MBF Cards S/B, including a 33.3% equity stake in Bonuskad Loyalty
S/B, for a total cash amount of RM623.4m (implying 2.8x book value). While the valuation pricing is much higher
than our expectation, we believe the acquisition makes strategic sense.
Besides, as Credit Card business is a high ROE (i.e. >20%) business segment,
such valuation is justifiable. Moreover, we believe its strong balance sheet
capability with RM2.2b in excess capital and a 10.5% Core Capital Ratio will
enable the group to support this acquisition. As such, we do not foresee MBF Cards
acquisition having a negative impact on the group’s dividend payout
capability. Management has been guiding for a dividend payout of
40%-50% in FY13 and we believe this expectation is still valid. The stock
offers a net dividend yield of 5%. We continue
to maintain our OUTPERFORM rating on
AMMB with an unchanged target price of RM6.70 (based on
1.6x its FY13 BV of RM4.16).
We are positive on
the move. The acquisition makes strategic sense as there will be a market
share enhancement whereby AMMB will become a dominant player in three areas of
the card business, i.e. card issuance, merchant acquisition and bill payment.
The enlarged scale of AmBank-MBF Cards will make it the top 3 players in the
merchants acquiring business with more than 45,000 merchants in force and an
increased cards receivables level of RM2.6b (7.4% market share from 6.0%
previously). We think organic growth
will be less time-effective for AMMB in
gaining market share when the card business industry is highly competitive and
is overshadowed by the new Responsible Finance guidelines. According to the May
2012 monthly statistic numbers, credit card loans growth was lower at 4.98%
(from April 2012’s +6.16% YoY). Obviously this is a slower growth as opposed to
the recent household loans growth of +11.7% YoY.
Strategically fit.
Hence, we believe that the organic growth of the credit card business could
have reached a saturated level. As such, financial institutions (banks and
non-banks) are targeting non-organic growth strategies to grow their market
shares. The ability to capture market share through this acquisition will
enable AMMB to grow its fee income from merchant transactions as well as
interest income from credit
card loans. The
enlarged scale of AmBank-MBF Cards operation presents opportunities for
revenue and cost synergies. There will also
be a ready pool of customers for cross-selling opportunities of AMMB’s financial
products.
Post-acquisition, AMMB will have the opportunity to tap on
MBF Cards’ established corporate bill payees and leverage on a combined network
with additional products and services. Besides,
we understand that credit card operators need a critical mass in terms of card
circulation and merchandiser in order to attract more card applications and to
retain existing cardholders. With the bigger number of cards issued, this will
definitely enhance its customer loyalty and bargain power to merchandisers
Source: Kenanga
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