Investment Highlights

• AMMB Holdings (AMMB) reported a stable net profit of RM350mil (+0.5%QoQ) in 3QFY19. Total income was lower by 6.0%QoQ in 3QFY19 despite recording an increase in net interest income (NII) by 2.0%QoQ. This was due to lower noninterest income (NOII) as a result of a volatile market and weaker market sentiment. Nevertheless, this was offset by a net write-back in impairments of RM51mil driven by large corporate recoveries. In 3QFY19, there were recoveries for 3 large corporate accounts amounting to RM150mil. These included RM100mil realised against the borrowers’ collaterals.

• 9MFY19 net profit of RM1.05bil (+19.0%YoY) was within expectations, making up 73.8% of consensus estimates. Preprovisioning operating profit rose by 18.2%YoY, supported by rise in NII, lower opex and net write-back in impairments of RM33.4mil. NOII for 9MFY19 declined due to weaker contributions from funds management, IB and markets businesses. With initiatives to manage cost under the BET300 programme, opex fell by 9.5%YoY in 9MFY19. This led to a positive JAW of 12.0%. 9MFY19 CI ratio improved to 51.6%. Meanwhile, credit cost continued to be benign at -0.04% for 9MFY19. ROE for 9MFY19 rose to 8.2% vs. 7.2% in 9MFY18.

• Gross loans grew 4.0% on a year-to-date (YTD) basis or 5.6% annualised. It was supported by loans in the targeted segments, midcorp, retail SMEs, business banking as well as mortgages but partially offset by the continued contraction in auto loans. The group’s exposure to the real estate, construction and oil & gas sectors remained at 8.0%, 4.0% and 2.0% of its total loans respectively.

• Customer deposits grew 11.0% YTD, at a faster pace than loans. CASA was up 9.0% YTD vs. the industry’s 2.0%. CASA ratio declined slightly to 20.7% but its retail CASA mix continued to hold up at 53.5%. Group LDR and loan-toavailable funds ratios were 94.8% and 80.5% respectively. LCR for financial holding company and net stable funding ratios for banking entities were all above 100.0%.

• 9MFY19 NIM was compressed by 5bps YoY to 1.93%. This was impacted by the rebalancing of loan portfolio and deposit mix.

• Gross impaired loan (GIL) ratio improved to 1.62% in 3QFY19 vs 1.72% in 2QFY19 and 1.77% in 1QFY19 (industry: 1.5%). Retail banking and investment banking’s GIL ratios remained steady at 1.32% and 0.10% respectively. Meanwhile, GIL ratios for wholesale and business banking improved QoQ to 2.18% and 1.68%. Loan loss cover including regulatory reserves rose to 116.8% as at end of 3QFY19.

• As at the end of 3QFY19, capital position remained healthy with an FHC CET1 ratio of 12.0%. The group issued RM1.5bil of Tier 2 capital in 3QFY19 to strengthen its capital position. Disposal of legacy retail NPLs announced earlier has been targeted to be completed by 4QFY19, and this will be earnings and capital accretive to the group.

Source: AmInvest Research - 22 Feb 2019