Investment Highlights

• AMMB Holdings Bhd’s (AMMB) recorded a higher net profit of RM391mil (+12.6% YoY) in 1Q20, underpinned by a stronger total income (+5.0% YoY) and a higher net write-back in provisions for loan impairments. Total income improved on a stronger net interest income (NII) of 4.0% YoY and non-interest income (NOII) of 6% YoY. NOII rose due to the higher trading income of the treasury and markets division which benefitted from lower yields as well as income from general insurance due to a decline in claims and higher investment income. On a QoQ basis, 1Q20 earnings were lower by 14.8% due to the non-repeat of the retail debt sale gain of RM285mil in 4Q19.

• 1Q20 net profit was within expectations, making up 27.9% of consensus estimates. With a controlled operating expenses (opex) growth of 3.0% YoY, the group recorded a positive JAW of 1.9%, resulting in an improved CI ratio of 49.7% in 1Q20 vs. 50.6% for 1Q19. Credit cost based only on loan impairment allowances was -0.18% in 1Q20 compared with -0.04% in 1Q19 supported by a write-back in provisions from the resolution of 1 large corporate loan. Also contributing to the improvement was the write-backs in stage 2 provisions established earlier for certain business banking and retail loans. ROE for 1Q20 was 8.7% (1Q19: 8.3%).

• Gross loans grew 2.5% YoY. On a YTD basis, growth of the group’s gross loans was muted. Growth in mortgage loans and retail SME loans was offset by large corporate loan repayments and the contraction in auto loans of RM700mil. 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 gross loans respectively.

• Customer deposit growth slipped by 4.0% YTD due to the release of corporate and retail deposits to manage the group’s excess liquidity buffer. Meanwhile, CASA growth shrank by 7.0% YTD, attributed to the outflow of corporate CASA that came in 4Q19. As a result, group’s CASA ratio eased slightly to 22.5%. Retail CASA mix rose to 50.5% attributed to the lower CASA from corporates. With a deliberate strategy to lower its deposit growth to manage NIM, LDR climbed to 94.5% from 91.1%. In addition, LCR for the financial holding company was reduced to 154% in 1Q20 from 193.0% in 4Q19. Net stable funding ratios for all banking entities stayed above 100.0%.

• 1Q20 NIM improved 9bps QoQ to 1.85% contributed by the release of the higher cost deposits, coupled with an improvement in asset yields of wholesale and retail banking.

• Impaired loans rose by RM52mil QoQ and consequently resulted in an uptick in gross impaired loan (GIL) ratio to 1.66% in 1Q20 from 1.59% in 4Q19. The upticks were contributed by a higher impairment of loans to the construction, manufacturing, wholesale, retail, restaurant and hotel as well as the household sectors (see Exhibit 5). Loan loss cover including regulatory reserves was 111.5% in 1Q20. 1Q20 saw the transfer of RM167.5mil from retained earned to top up regulatory reserves. This was to meet BNM’s minimum requirement of impairment allowance and regulatory reserves of at least 1.0% of the exposure at default net of expected credit losses.

Source: AmInvest Research - 23 Aug 2019