Results

• Within expectations. Reported 2QFY17 net profit of RM397.8m (+4% YoY, +23.2% QoQ), bringing 1HFY17 net profit to RM720.8m (-0.2% YoY), accounting for 52.9% and 56.7% of HLIB and consensus full year net profit forecasts respectively.

Deviations

• Largely in line.

Dividend

• Declared 1 st interim dividend of 5 sen, in line with 1H16 dividend.

Highlights

• Against FY17 headline KPIs…. Only PATMI and NIM came in below management guidance, whilst other targets were within management guidance as at 1H17; ROE (8.7%), CTI (55.6%), GIL (1.64%) and CASA (21.9%).

• YTD… 1H17 loan base fell 0.7% to RM87.3bn on the back of weak corporate banking and auto finance, however mortgage loan continued to thrive. Mortgage loan grew 2%, offsetting other weaknesses across the board. AMMB deliberately reduced exposure in fixed deposit by 10.2% but increased its CASA by 21.9%. AMMB shielded NIM from further weakness (1.93% vs. 1.94%) from combination of expensive deposit and CASA, driven by corporate loans and revision in base price recently.

• QoQ… 2Q17 loan base inched up marginally by 0.3% supported by mortgage loan that rose by 5% whilst deposit declined 4% driven by fixed deposit resulting in LDR hitting 105%. We note that AMMB posted strong NOII in 2Q17 as a result of higher trading income by 165%. Loan loss recoveries continued to aid earnings despite exposure to several non-residential property accounts, which most are well collateralized.

• Asset quality improved on YTD basis, with GIL ratio improving to 1.64% (from 1.7% in 1Q17) and loan loss coverage increasing marginally to 83.5% (from 81.1% in 4QFY16).

• We reckoned that the transformation initiatives starting to show fruitful results on topline and bottomline numbers, especially on its cost savings that booked RM62m so far. However, management guided for further weakness in credit cost as there are several corporate loans it continued to monitor while exposure on O&G remains limited.

Risks

• Slower impact from de-risking of auto loan book and lower recoveries to impact bottom line.

Forecasts

• Maintained.

Rating

HOLD ( ↔ )

• While results are encouraging, we are unperturbed as slower loan and deposit growth (below industry) will pose a challenge to management to compete in the space and hence capping upside in future interest income.

Valuation

• Our Gordon Growth derived TP of RM4.42 is unchanged (based on ROE of 8.8% and WACC of 10%). Maintain HOLD rating

Source: Hong Leong Investment Bank Research - 22 Nov 2016