Arab-Malaysian Development Bank Holdings Berhad (AMMB Holdings Bhd) is one of the largest financial service firms in Malaysia. The bank was found in 1976 and has since been transformed into a fully integrated financial firm with solutions ranging from retail and corporate banking, Islamic, investment, brokerage and insurance.
AMMB Holdings is the sixth largest local bank in Malaysia in term of asset size. The company has since diversified from being just a traditional bank into an integrated financial firm. Its revenue has been growing at 10.6% annually for the past five years. Its earnings per share have been growing even more impressively at 13.0% per year during the same period. Lastly, the company has saw its dividend per share grew at stunning 21.1% annually per year over the last five years.
Some of the key area of growth for AMMB Group is the possibility of international expansion with the help of largest shareholder, Australia and New Zealand Banking Group (ANZ). The company has already started with a strategic partnership with ANZ in its corporate & institutional banking to capitalize on ANZ’s network for more cross border business. Moreover, ANZ can also help AMMB in expanding its product range by bringing in what has work for the parent to create something for AMMB.
Currently AMMB Holdings Bhd not even considers the top 5 banks in Malaysia by asset size. Therefore, it might have some opportunity in competing to gain some market share locally. The company has been doing that through by acquisitions and organically. This can be seen by expanding into areas like insurance and investment banking. Another key area of growth might be in Islamic financing. This is because Malaysia as a nation is pushing hard for Malaysia to become an Islamic finance hub. If that is successful, banks with prominent Islamic finance arm like AMMB Holdings would be well position to benefit from it.
However, investing in the company is not without risk. AMMB Holdings is still predominantly a Malaysia-based bank. 99% of its loans are originated in Malaysia. This means that the company is very dependent on the economy of Malaysia.
Secondly, banks tend not to have much differentiating factor between them. Thus, most of them have to compete in price for customers. The lack of pricing power means that the profitability of a bank is very much dependent on how the sector is performing as a whole, which is not something that AMMB Holdings has control over.
Lastly, the company is quite exposed to the household loan sector. 53.1% of its loans are in household loans focusing in residential property, hire-purchase loans, credit cards and other personal term loans. Malaysia household debt to income is already at 146%, one of the highest in the region. Any slowdown in the economy will hit the consumers. And with such a high household debt to income, there might be serious consequences if they are unable to keep up with their interests.
TOP 3 SHAREHOLDERS (As at 30 June 2014)
ANZ Funds Pte Ltd: 23.78%
Employees Provident Fund Board Malaysia: 13.45%
Amcorp Group Bhd: 7.86%
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The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in Stanley Lim’s personal capacity and do not in any way represent those of his employer and other related entities. Stanley Lim does not own any companies mentioned.