Results

• In line with expectations. Posted 3Q17 net profit of RM313.2m (+4.3%YoY,-21.3% QoQ). This brings 9M17 net profit of RM1.03bn, in line with ours, but slightly higher than consensus estimates, accounting for 75.8% and 81.4% forecast respectively.

Deviations

• Largely in line.

Dividend

• None, YTD dividend stood at 5sen.

Highlights

• Against FY17 headline KPIs…. Missed 3 guidance namely PAT growth, CIR and CASA composition in 9M17.

• 3Q17… Net profit was edged higher by 4.3% YoY to RM313.2m due mainly to higher associate contribution of RM20.4m (+477% YoY, +85% QoQ). It declined by 21.3% QoQ due to lower NOII (-19.3% QoQ) from on smaller trading and investment gains. Whilst NII remained weak despite +10bps in NIM in 3Q17 to 2.02%.

• 9M17… Net profit rose slightly to RM1.03bn (+1.2% YoY) due to higher CA provision of RM310m (+12% YoY) and NOII income of RM1.06bn assisted by fixed income trading. Expenses were well contained at RM2.3bn (-0.3% YoY) due to lower admin cost by RM41m.

• Loan base inched up by only 3% YoY in 9M17 as AMMB has been selective on certain segment especially SME and mortgage that rose 11% YoY and 15% YoY respectively. Corporate banking loan fell by 5% due to major corporate repayment and AMMB continued in shifting its portfolio from auto finance that led to a 7% decline.

• NIM in 3Q17 increased to 2.02% driven from asset repricing and higher CASA booked in 3Q17 alone. Given this, we deem that AMMB NIM is fairly stable in line with management guidance while growing SME loan should help its NIM to grow moving forward.

• Asset quality is on track on recovery given its recoveries efforts, GIL now improved to 1.54% as LLC inched up marginally to 84.1%. Credit cost for 9M17 stood at -23bps due to higher recoveries booked.

• Despite meeting most its KPIs, we foresee near term challenging outlook for AMMB as initiatives made have so far not translated into earnings growth. However we reckon that AMMB’s focus on prudent asset quality should be lauded given concern on its on-going weakness in this area.

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 is raised to RM4.48 as we roll our TP into FY18 based on unchanged 9.3x ROE and WACC of 10%. Maintain HOLD rating

Source: Hong Leong Investment Bank Research - 27 Feb 2017