Results

• Results in line… 2Q18 net profit of RM331.5m (-16.7% YoY; +1.0% QoQ) took 1H18 net profit to RM659.7m (-8.5% YoY), accounting for 47.7% and 47.0% of HLIB and consensus estimates respectively.

Deviations

• None.

Dividend

• Declared 5 sen dividend in 1H18, equivalent to 22% payout.

Highlights

• QoQ… 2Q18 net profit was flat (+1.0%) as lower NIM was offset by higher LLP. The spike in LLP to RM27.1m was mitigated by lower than expected tax rate of only 17.4%. The group continued to benefit from net recoveries during the quarter.

• YoY… Net profit declined to RM331.5m (-16.7%), dragged by lower NOII which suffered from widened actuarial loss from insurance-based JV.

• 1H18… Net profit of RM659.7m was assisted by lower LLP of RM48m (+55%) and higher NII of RM1.22bn (+10%) which mitigated the rise in the opex (+5%). NII was driven by higher NIM of 1.99% (1H18) amid lower funding cost.

• Loans showing traction… Gross loans grew +6.6% YoY. On a positive note, targeted segments namely SME and mortgaged continued to support growth which offset the weakness in auto loans.

• Deposits improve but CASA slows… Deposits improved by +12.5% YoY on the back of higher growth in fixed deposits by +11% YoY which offset CASA which grew by +6.4% YoY. CASA composition dropped to 20.7% from 21.9% a year ago. Management guided that 70% of deposits received from SMEs are in the form of CASA. LDR stood at 88.6%.

• Pressure on NIM... NIM slipped 4bps QoQ to 1.97% in 2Q18 largely due to a hike in funding costs during the quarter. Portfolio rebalancing and lower deposit rates negated the impact of asset re-pricing.

• Stable asset quality… GIL was unchanged at 1.88% where absolute NPL was barely untouched while the loan loss coverage rose to 101.4%.

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.

• While AMMB is currently trading at steep discount of 0.7 P/BV, it lacks immediate catalyst for rerating.

Valuation

• Maintain our TP at RM5.20. TP was derived from GGM i) COE of 11% ii) WACC of 8.9%. Maintain BUY.

Source: Hong Leong Investment Bank Research - 29 Nov 2017