Results

• Results below. 3Q18 net profit of RM219m (-30% yoy; - 34% qoq) took 9M18 net profit to RM878m (-15% yoy), accounting for 63.4% and 62.5% of HLIB and consensus estimates respectively.

Deviations

• Higher loan-loss-provision due to higher IA and lower recoveries

Dividend

• None, YTD dividend stood at 5 sen, equivalent to 22% payout.

Highlights

• 3Q18. Net profit disappointed at RM219m (-30% yoy; -34% qoq), weighed by surging loan-loss-provision to -RM78.7m (- 207.2% yoy), on the back of higher IA and lower recoveries. Given this, AMMB’s credit cost was higher at 8bps after several quarters of net recoveries.

• 9M18. Despite a 10.2% increase in NII to RM1.9bn), NOII and LLP brought net profit down to RM878m (-15% yoy).

• Loan pickup. Loan posted a higher growth of +4.1% yoy (from 4 .5 % a year ago), fueled by the rise in retail loan while business banking grew +1.2% yoy. Retail loan was underpinned by robust mortgage, whilst its new keys focus on retail SME showing good momentum.

• CASA slower. Deposits declined by 3.1% on the back of easing savings deposit (-3.1% yoy). Nevertheless, CASA rose by 7.1% yoy, driving CASA ratio to 20%. NIM slipped by 2bps on qoq to 1.95%, as portfolio rebalancing and lower deposit rates negated the impact of asset re-pricing.

• Higher credit cost. Lower recoveries and higher IA drove 9M18 credit cost higher 3 bps (vs. net credit cost for over the last 1 year). Management indicated in the past that net recoveries environments was not sustainable, however we were surprised with the slower recoveries in this quarter that sent credit cost higher.

• Asset quality improves… GIL improved to 1.77% from 1.88%, while loan loss coverage rose to 101.8% Despite registering benign asset quality, management remains watchful on corporate loans impairment.

Risks

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

Forecasts

• We fine tune our FY18 and FY19 earnings forecast (by - 14% and -19%) to account for higher opex (due to MSS) and credit cost.

Rating

HOLD( ↔ )

• 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.

Valuation

• Post earnings adjustment; we trimmed our TP to RM4.70 . TP was derived from GGM i) COE of 11% ii) WACC of 9.1%. Maintain HOLD rating.

Source: Hong Leong Investment Bank Research - 1 Mar 2018