Results

• Results in line. 1QFY18 results were within expectations, with net profit of RM328.3m (+1.6% YoY, -2.2% QoQ) making up 23.7% and 23.4% of HLIB and consensus estimates respectively.

Deviations

• None.

Dividend

• None.

Highlights

• YoY… Net profit grew +1.6% YoY to RM328.3m, driven by higher NII (+8% YoY), lower loan loss provision of RM20.4m (-68.5% YoY) and lower taxation rate of 19%. However this was offset by higher opex by +5% YoY to RM784.2m.
• QoQ… Net profit declined by -2.2% QoQ caused by lower NOII by -14.3% QoQ and higher opex by +6.8% QoQ. However, it was cushioned by higher NII by +3.8% QoQ to RM641.5m.
• Loan showing traction… Gross loan accelerated to RM92.7b (+6.6% YoY, +1.9% QoQ). YTD, gross loan growth was broad based, emanating from business banking (+6%), retail business (+2%) and wholesale banking (+1%). In the retail segment, tough the growth was flat, retail SME continued to outpace others, widening by 22% YTD. Hire purchase remained on moderating trend.
• … alongside with deposit growth. Deposits improved by +7.2% YoY on the back of higher growth in fixed deposits by +11% YoY. Nevertheless, deposits fell on QoQ by -1.2% due to shedding of expensive deposits by -2.1% while CASA accelerated by +2.2% QoQ. LDR remained at higher level of 97.6%.
• NIM holding up well… NIM fell by -4bps QoQ with persistent pressures in retail segment but was cushioned by portfolio rebalancing efforts. On YoY, NIM rose by +8bps YoY to 2.02% assisted by shedding of expensive deposits.
• Asset quality… GIL inched up to 1.88% from 1.86% in 4Q17 due to a rise in NPL in the manufacturing and transport segment while the loan loss coverage held up at 79.8% (+1bps). Risks ? Slower impact from de-risking of auto loan book and lower recoveries to impact bottom line. Forecasts ? Unchanged.

Rating

BUY (↑)

• Value has emerged after the recent share price retracement (-4% in 2 days) on failed merger attempt with RHB Bank. AMMB is making progress in various areas while its share price is trading at a steep discount of 0.78 P/BV as compared to 1x P/BV on average.

Valuation

?   Maintain our TP at RM5.20, TP was derived from GGM i) ROE of 8.8x ii) WACC of 8.9%. Upgrade to BUY.

Source: Hong Leong Investment Bank Research - 19 Sep 2017