Held briefing… We attendedAMMB’s post-results briefing, and management clarified various issues in hands, including the scrapped merger.
Business as usual… Despite in merger discussionwith RHB, AMMB delivered commendable 1Q18 results amid a quiet quarter due to Ramadhan and Hari Raya. To recap, AMMB posted results in line with HLIB and consensus with earnings growing by +1.6% YoY and +31.2% QoQ. However, this was due to partly lower than expected taxation rate of 19%.
Scrapped merger explained… AMMB refuted the claim that the merger was scrapped due to contingent liabilities. Management explained that both parties were unable to reach conclusion over various terms, among others pricing and synergies. Post-failed merger, AMMB will pursue organically its Top4 aspiration by 2020.
Clarification on contingent liabilities … It was reported in the news that AMMB is facing issue of contingent liabilities. AMMB explained that it is a norm for banks to incur certain contingent liabilities though banks are not expecting losses from these transactions. Relating to the above, AMMB incurred contingent liabilities from 2 products namely bank guarantee (BG) and letter of credit (LC). The group’s current contingent liabilities amounted to RM8.9bn (6.5% of total assets & 7.4% of total liabilities).
Broad-based income… Since Dato Sulaiman took the CEO seat, the primary objective is to grow four segments (namely wholesale banking, business banking, retail banking and general insurance) and optimize the income from wholesale banking. Such initiatives are picking up momentum whilst focus on key products namely cards and SME have already contributed to the NII growth in 1Q18.
Asset quality stills an issue… AMMB still reported net recoveries that lowered its credit cost. Management hinted that AMMB still could enjoy net recoveries throughout FY18 owing to 1-2 corporate accounts. Despite having a benign asset quality, management is watchful on corporate loans impairment. Exposure to the O&G and the commercial real estate sector stood at 2% and 8% of total gross loans.
Risks
Slower impact from de-risking of auto loan book and lower recoveries to impact bottom line.
Forecasts
Unchanged.
Rating
BUY (↔)
We feel that AMMB is showing progress towards its top 4 aspiration by 2020. SME loan spiked 19% on an annualized basis while further NIM recovery is in sight owing to gradual shift from fixed deposit into CASA. AMMB is currently trading at steep discount of 0.78 P/BV.
Valuation
Maintain our TP at RM5.20, TP was derived from GGM i) ROE of 8.8x ii) WACC of 8.9%. Maintain BUY.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....