Investment Highlights

• AMMB Holdings Bhd’s (AMMB) reported a net profit of RM320mil (-18.4% QoQ) in 2Q20. Total income grew marginally by +0.4% QoQ led by higher net interest income (NII) from a NIM recovery of 4bps QoQ while non-interest income (NOII) was softer as the higher trading income of the treasury and markets division which benefitted from lower yields was offset by lower income from insurance. Although operating expenses were lower by 0.4% QoQ, net impairment allowances rose to RM109.1mil in 2Q20 compared to a net write-back in provisions of RM32.5mil in 1Q20.

• 6M20 net profit of RM711mil (+2.2% YoY) was within expectations, making up 49.1% of consensus estimates. With a total income growth of 5.6% YoY and controlled operating expenses (opex) growth of 3.6% YoY, the group recorded a positive JAW of 2.0%, resulting in an improved CI ratio of 49.4% in 6M20 vs. 50.4% for 6M19. Credit cost is normalizing and based only on loan impairment allowances it was 0.12% in 6M20 vs. 0.05% in 6M19. Contributing to the increase was provisions for newly impaired business banking and wholesale banking loans, higher expected loss (ECL) charges for retail banking loans and lower recoveries. ROE for 6M20 was 7.9% (6M19: 8.2%).

• Gross loans grew 0.1% YTD or 2.0% YoY. Growth in mortgage, mid-corp, retail SME and business banking loans was offset by corporate loan repayments and contraction in auto loans of RM1.3bil. Excluding auto loans, loan growth was higher at 2.0% YTD or 6.0% YoY.

• Customer deposit growth slipped by 4.0% YTD due to the release of expense deposits to manage the group’s liquidity. Meanwhile, CASA growth shrank by 7.0% YTD, attributed to lower corporate CASA. As a result, group’s CASA ratio eased slightly to 23.4% in 6M20 vs. 24.9% as at the end of FY19. Retail CASA mix increased to 50.3% in 2Q20 from 46.0% in 4Q19 attributed to the lower CASA from corporates. With a slower deposit growth, LDR climbed to 99.3% in 2Q20 from 95.3% in 4Q19. LCR for the financial holding company was stable QoQ at 153.0%.

• 2Q20 NIM rose 4bps QoQ to 1.91%. NIM in Oct 2019 further improved to 1.98% due to the reprising of deposits post-OPR cut. For 6M20, NIM was compressed by 8bps YoY to 1.89% due to lower asset yield from the May 2019 OPR cut of 25bps.

• Impaired loans rose by RM128mil or 7.6%QoQ and consequently resulted in an uptick in gross impaired loan (GIL) ratio to 1.77% in 2Q20 from 1.66% in 1Q20. The uptick was contributed by a higher impairment of loans to the manufacturing, construction, wholesale, retail, restaurant and hotel, transport, storage and communication as well as the household sectors (see Exhibit 5). Loan loss cover including regulatory reserves declined to 105.58% in 2Q20 due to the uptick in loan impairments.

• An interim dividend of 6 sen/share (payout: 25%) has been proposed for 6M20. This was higher than the 5 sen/share (payout: 25%) declared in 6M19.

Source: AmInvest Research - 2 Dec 2019