Investment Highlights

• AMMB Holdings’ (AMMB) 2QFY19 net profit was stable at RM348mil. 2QFY19 total income declined marginally by 0.6%QoQ contributed by lower NOII owing to a weaker market sentiment. Also, NIM contracted in 2QFY19 by 11bps QoQ due to higher funding cost. This has resulted in a modest NII growth though gross loans have expanded by 1.6%QoQ.

• 1HFY19 net profit of RM696mil (+5.5%YoY) was within expectations, making up 53.4% of consensus estimates. Preprovisioning operating profit rose by 20.3%YoY supported by the rise in NII, NOII and lower operating expenses (opex). Positive JAW of 13.0% was reported for 1HFY19. 1HFY19 CI ratio improved to 50.4% contributed by lower opex with a leaner cost structure after the completion of the MSS and higher total income. Meanwhile, credit cost continued to be benign at 0.05% for 1HFY19. The ROE for 1HFY19 came in at 8.2% marginally higher than 1HFY18's 8.1%.

• Gross loans rose 4.0% year to date (YTD) or 7.6% annualised. The expansion was broad-based. Loans in the targeted segments, particularly the mid-corp and SME loans, grew positively while auto loans continued to contract. Mortgage loans and credit card balances expanded by 7.0% and 11.0% respectively YTD. The group’s exposure to the real estate sector remained at 8.0% of its total loans with 87.0% of the loan exposure rated moderate risk or better. Meanwhile, its exposure to the construction sector was 4.0% with only 5.0% of the loans carrying substandard risk grades and below. Elsewhere, the group’s exposure to the oil & gas sector stood at 2.0% of the total gross loans with 4.0% of these loans classified as impaired.

• Customer deposits were up 5.0% YTD, at a faster pace than loans, thus improving the group’s liquidity with a lower LD ratio of 94.7% (1QFY19: 95.1%). Meanwhile, CASA climbed 8.0% YTD vs. the industry’s contraction of 1.0%. This raised group’s CASA ratio to 21.8% with a retail CASA mix of 52.3%.

• 1HFY19 NIM contracted by 2bps YoY to 1.97%. Not only that this was impacted by the rebalancing of loan portfolio but also due to higher funding cost. The group’s retail deposit mix has risen to 54.6% and this has been favourable in partially offsetting the increase in funding cost.

• The gross impaired loan (GIL) ratio was steady at 1.72% in 2QFY19 vs. 1.77% in 1QFY19 (industry: 1.53%). New impaired loans’ formation slowed down by 4.6%YoY to RM644mil in 1HFY19. Retail banking and business banking’s GIL ratios rose slightly to 1.32% and 2.53% respectively from the preceding quarter. Meanwhile, GIL ratios for wholesale and investment banking fell QoQ. Loan loss cover, including regulatory reserves, rose to 111.3% as at end- 2QFY19 while LCR for FHC of 144.0% was well above the regulatory requirement. NSFRs for all banking entities were higher than 100.0%.

• As at end-2QFY19, the capital position remained healthy with a FHC CET1 ratio of 11.7%. An interim dividend of 5 sen/share has been been proposed for 1HFY19, similar to 1HFY18 (payout: 22.0%).

Source: AmInvest Research - 23 Nov 2018