AMMB Holdings - 4Q18 Affected by Higher Expenditure

Date: 01/06/2018

Source  :  Affin Hwang Capital
Stock  :  AMBANK       Price Target  :  3.70      |      Price Call  :  HOLD
        Last Price  :  4.56      |      Upside/Downside  :  -0.86 (18.86%)

AMMB’s FY18 net profit of RM1,132m (-14.5% yoy) came in within consensus and slightly above our expectations. 4QFY18 results was impacted by the staff MSS cost of RM146m, though on a normalized basis, 4QFY18 net profit grew by 8.5% yoy and 66.4% qoq (driven by credit recovery of a corporate account). At the operating level, net income generation remains healthy with loan growth at 5.9% yoy and NIM holding up at 2.0% (+2bps yoy). On the other hand, we still keep our HOLD rating unchanged, with a revised Price Target at RM3.70 (valued based on a 0.68x CY19 P/BV target).

FY18 Above Affin’s Estimates, Core Net Profit Down 6% Yoy

AMMB reported a FY18 PATAMI of RM1,132.1m (-14.5% yoy), on the back of a minimal net impairment charge of RM16m against a RM196m net recovery in FY17 though at the operating level, the group has shown a much stronger growth in fund-based income (+9.9% yoy), insurance (+21% yoy) while offset by slower non-interest income (+6.1% yoy). The year also saw higher operating expenses (+12% yoy), which was due to a MSS exercise in 4QFY18 (total cost at RM146m) as well as on-going investments to build the group’s capabilities (to beef up sales force). Results were within consensus, though it was slightly ahead of our FY18E forecast of RM1.07bn.). A final DPS of 10 sen has been proposed (4QFY17: 12.6 sen).

A Longer Term ROE of 10% Could be Achievable

We understand that AMMB’s management team is striving towards improving its ROE of 7% (FY18). In our view, a longer term ROE of 10% (in-line with peers) could be achieved with increased operating income, lower overheads (potentially a CIR of < 55%) and the absence of hefty impairments.

Maintain HOLD, Price Target Adjusted Down to RM3.70 From RM4.00

Maintain HOLD based on a revised Price Target of RM3.70 (based on 0.68x P/BV on CY19 BVPS) from RM4.00 (based on CY18 valuation). In our view, there is still much concerns over the near-term outlook of AMMB, such as the removal from the FBMKLCI 30 stock components, on possibly higher provisions and uncertainties with regards to the legal suit initiated by Alliance Bank (of which may affect AMMB’s business banking unit), although the group has shown improved operating results arising from the revamp in its internal operations.

Source: Affin Hwang Research - 1 Jun 2018

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