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PublicInvest Research

Author: PublicInvest   |   Latest post: Wed, 21 Apr 2021, 10:46 AM

 

AMMB Holdings Berhad - Operationally Steady

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The Group reported a steady 3QFY21 net profit of RM263.8m (-31.0% YoY, +11.2% QoQ), the weaker YoY performance no surprise given margin compressions (multiple rate cuts) and asset quality troubles as a result of the COVID-19 pandemic. Cumulative 9MFY21 net profit of RM866.3m (-20.8% YoY) is within our and consensus forecasts at 75% of full-year estimates, on an underlying basis. FY21 financials will be impacted by an RM2.83bn provision charge to be undertaken in 4QFY21. Income growth (+5.7% YoY) is encouraging, with improvements seen in both the net interest and non-interest levels. The Group has seen traction in its transformation plans, challenges from the COVID-19 pandemic notwithstanding, though this settlement charge is a potential overhang over future dividend payments. While we keep our Trading Sell call with an unchanged target price of RM2.60, any significantly untoward reaction should be taken as opportunities to accumulate. The company’s shares are currently suspended from trading.

  • Income for 9MFY21, on an underlying basis (excluding net modification loss of RM15m), increased +6.2% YoY to RM3.44bn, underpinned by the wholesale banking (+25% YoY) and investment banking (+13% YoY) segments. Non interest income (NoII) growth (+10.5% YoY) is still underpinned by a sharp increase in Treasury-related income (+40% YoY), though the pace of growth has moderated in 3QFY21.
  • Net interest margin (NIM) saw further improvements during the quarter to 2.03% (2QFY21: 1.92%) largely due to further re-pricing of its loans and deposits re-priced (+17.4bps) post-OPR cuts, and improved funding mix. CASA ratio remains relatively healthy at 28.1% (2QFY21: 29.7%).
  • Loans growth is up +7.0% YoY, supported by upticks in both the retail and SME business segments. Property-related loans (+12.5% YoY, +2.7% QoQ) remain the biggest growth driver. Loans growth is anticipated at ~4.0%.
  • Asset quality is still a key risk area, with management making a further RM60m in pre-emptive macro provisions in 3QFY21 for a cumulative overlay of RM442m (inclusive of FY20 provisions). While asset quality remains sound with 85% of its total book still in Stage 1, we are wary over the sudden spike in newly-impaired loans (Figure 2) this current quarter, the bulk of which has come from the retail segment. Current overall gross impaired loans ratio is 1.73% (2QFY21: 1.57%). Loan loss coverage is 103.4% (2QFY21: 99.9%).
  • Capital remains sufficient despite the RM2.83bn hit (-2.5%, on proforma basis, with management re-affirming no immediate need to raise equity capital given confidence in its building-up through immediate earnings growth.

Source: PublicInvest Research - 2 Mar 2021

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