KUALA LUMPUR: The banking sector here has received a neutral call from HLIB Research following RHB Bank Bhd's announcement yesterday that it has obtained the central bank's approval to proceed with merger discussions involving RHB Banking Group and AmBank Group.
The Bank Negara approval kickstarts talks for the planned merger based on an all-share deal between the two banking groups to create a larger bank, the research house said.
Successful conclusion of negotiations will see the creation of the fourth largest bank in Malaysia with assets estimated at RM386 billion.
"The market has been aware of such a potential merger as reported in some newspapers on March 17. As such, we are not entirely surprised with the move. We opine that this has been somewhat priced in by the market as seen in the runup in AMMB share price," HLIB Research said in its Newsbreak report today.
The research firm said that the share price rally since the beginning of the year has brought valuation of both RHB and AMMB closer to their respective book values.
The firm made note of the fact that details of the merger plans are sketchy at the moment.
However it did point out that RHB's management has said that the deal will only involve issuance of shares for acquisition of AMMB’s asset and liability.
"We keep our neutral stance on the banking sector due to modest growth outlook for earnings, loan and deposit growth in the environment of stable GDP expansion. The modest earnings growth will result in lower ROE and lower the expected return," it explained.
Within this scenario, HLIB Research highlighted that Maybank deserves a buy call with a target price of RM9.90 and BIMB also gets a buy call with TP of RM4.86.