AMMB Holdings (RM5.09; Buy; Price Target: RM5.50; AMM MK)

Proposing a dividend reinvestment plan
AMMB has proposed to undertake a dividend reinvestment
plan, as part of its capital management initiative to enhance
shareholders value. The dividend reinvestment plan will
allow shareholders an option to reinvest their dividend
entitlements (representing cash dividend declared by AMMB
including interim, final, special or any other cash dividend) in
new ordinary shares of AMMB.
The issue price of the new shares which are entitled for the
dividend reinvestment scheme would be at an issue price
which is not more than 10% discount to the volume
weighted average market price of AMMB for the five
market days immediately prior to a price fixing date to be
determined later.
This is a similar step taken by Maybank when it announced
a similar dividend reinvestment scheme which was proposed
in March and approved at its EGM in May. Similar script
dividend options are also offered by the Singapore banks.
These steps, we believe, are inline with the capital proposals
issued by the Basel Committee for further strengthening of
capital funds by banks.
AMMB paid out 24% of its FYMar10 earnings as dividends.
We forecast dividend payout ratio of 35% for FY11-13
which is at the lower end of AMMB’s guidance of 35-40%
for FY11. AMMB intends to raise dividend payout of more
than 40% as part of its medium term aspirations.
Our target price of RM5.50 (implying 1.5x CY11 BV) is
based on the Gordon Growth Model and assumes 14%
ROE, 11% cost of equity, and 5% long term growth.
Maintain Buy.