Highlights

AMMB Holdings - Results in Line, Works in Progress

Date: 23/08/2018

Source  :  HLG
Stock  :  AMBANK       Price Target  :  4.15      |      Price Call  :  HOLD
        Last Price  :  4.50      |      Upside/Downside  :  -0.35 (7.78%)
 


1QFY19 net profit of RM347m (5.9% YoY, 37.2% QoQ) came in within expectations, accounting for 31% and 27% of our and consensus forecasts. Results was attributed to lower expenses, however, it was partially mitigated by slower operating income, primarily on NOII. Loan’s grew strongly by 6% YoY, largely backed by the growth in business banking and retail segments. Deposits grew at faster pace of 6% YoY, led primarily by fixed and CASA. GIL ratio improved to 1.59% from 1.64% in 1Q18. Downgrade rating to HOLD with unchanged TP of RM4.15, derived from GGM of (i) COE of 10% and (ii) WACC of 8.2%.

Stronger results. AMMB delivered solid earnings in 1QFY19, registering net profit of RM347m (5.9% YoY, 37.2% QoQ). The results came in within expectations, accounting for 31% and 27% of our and consensus forecasts respectively.

QoQ. 1QFY19 net profit surged by 37.2% to RM347.6m on the back of lower expense of RM693m (-24.6% QoQ) as AMMB incurred one-off MSS-related cost in 4Q18. However, the lower expenses were partially offset by weaker operating income of RM1.17bn (-6.7% QoQ) caused by both NII (-1.1% QoQ) and NOII (-13% QoQ). In addition, AMMB continued to record normalisation of provision, posted at RM-7m (- 140.6% QoQ).

YoY. 1QFY19 net profit grew by 5.9% to RM347m, as the decrease in NOII (-11.1% YoY, which has in turn resulted in total operating income declining by -3.0% to RM478m) was more than mitigated by higher net interest income (as a result of 6% YoY loan growth amidst stable NIM of 2.02%). In addition, despite personnel cost was higher by 5.1% (due to the MSS payment to staff on June18), total expenses were well contained (-11.5% YoY), reaping the benefit of various cost savings initiatives.

Loan. Loan grew by 6% YoY, largely backed by the growth in business banking and retail segments by 29% YoY and 11.8% respectively. AMMB sustained strong growth in mortgage loan, advanced by 36.5% YoY and we believe AMMB would sustain strong growth in this segment due to its lower base residential loan.

Deposits. Deposits grew at faster pace of 6% YoY, led primarily by fixed and CASA growth of 6.3% YoY and 2.5% YoY. Overall. AMMB defended its NIM at 2.02%, unchanged on YoY on the back of shifting into higher loans yield portfolio and reduction of cost of borrowings incurred. Nevertheless, AMMB’s CASA still lagged industry, comprised on 21.3% of total deposits (-5bps YoY).

Asset quality. 1Q19 net credit cost has started normalising gradually upwards to 3bps due to the MFRS9 impact and lower recoveries. GIL ratio improved to 1.59% from 1.64% in 1Q18, contributed by the lower GIL ratio in retail and wholesale banking. Nevertheless, on QoQ basis, AMMB incurred lumpy RM30m impairment, related into a customer involved in manufacturing sector which was fully secured, which has in turn resulted in GIL rising by 2bps QoQ to 1.59% in 1Q19.

Forecast. No Change to Our Forecast.

Downgrade HOLD, TP: RM4.15. Despite results in line with our expectations, we downgrade our rating to HOLD given its share price strength recently which narrowed the upside. In addition, its P/B ratio stands at 0.73x vs. 0.66x when we upgraded our rating on 2 July 2018. TP is based on GGM of (i) COE of 10% and (ii) WACC of 8.2%.

Source: Hong Leong Investment Bank Research - 23 Aug 2018

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