Investment Highlights

• AMMB Holdings (AMMB) reported a higher net profit of RM460mil (+31.4% QoQ) in 4QFY19. Total income was flat at +0.8% QoQ in 4QFY19 while non-interest income (NOII) rose QoQ as a result of stronger trading income. Operating expenses grew by 17.0% QoQ to RM600mil due to investment expenses and performance payouts. 4QFY19 recorded a net write-back in loans impairments of RM272mil driven by gains from retail NPL sale of RM285mil and the resolution of corporate NPL which saw a write-back in provisions.

• 12MFY19 net profit of RM1.5bil (+33.0% YoY) was within expectations, making up 104.3% of consensus estimates. Preprovisioning operating profit rose by 15.0% YoY supported by lower operating expenses benefiting from the BET300 programme resulting in cost savings of RM112mil. This contributed to a positive JAW of 11.0% with an improvement in group CI ratio to 54.3% for FY19 vs. 60.8% for FY18. Total income for FY19 was slightly lower by 1.4% YoY due to softer NOII despite an increase in NII by 4.0% YoY driven by an expansion in loan book. The decline in NOII was due to lower IB and investment income as a result of the volatile market. Credit cost was -0.30% for FY19 contributed by higher recoveries. ROE for the FY19 rose to 8.8% vs. 7.0% in FY18.

• Gross loans grew 6.0% YoY supported by loans in the targeted segments, mid-corp, retail SMEs, business banking as well as mortgages but partially offset by contraction in auto and large corp loans. The group’s exposure to the real estate, construction and oil & gas sector remained at 8.0%, 4.0% and 2.0% respectively of its total gross loans.

• Customer deposit growth of 12.0% continued to outpace loans. It was stronger than the industry’s 5.0% growth. CASA grew 22.0% YoY vs. the industry’s 3.0%. As a result, group CASA ratio climbed to 23.3%. The mix of retail CASA mix was 47.0% as corporate CASA grew strongly in 4QFY19. With a stronger deposit growth improving the group’ liquidity, LDR declined to 91.1% while loan-to-available funds ratio stood at 83.0%. LCR for financial holding company was high at 193.0% and net stable funding ratios for all banking entities were above 100.0%.

• FY19 NIM was compressed by 11bps YoY to 1.89% impacted by higher funding cost and pressures on retail loan rates.

• Gross impaired loan (GIL) ratio improved to 1.59% in 4QFY19 edging closer to the industry’s 1.5%. Retail banking and investment banking, wholesale and business banking GIL ratio improved QoQ while that of business banking rose to 2.18%. Loan loss cover including regulatory reserves was 114.0% as at the end of 4QFY19.

• A final dividend of 15 sen/share has been proposed bringing the full FY19 dividends to 20 sen/share (payout of 40%).

• Capital position remained healthy with an FHC CET1 ratio of 11.9%.

Source: AmInvest Research - 29 May 2019