Highlights

• Post-results briefing. We attended AMMB’s post-results briefing, and walked away feeling neutral.

• 9M18 results weighed down by recoveries. Reversal of credit charge (from a credit recovery) derailed AMMB’s overall 9M18’s net profit. Moving forward, management reiterated that current credit charge level could be sustained on the back of slower recoveries. Nevertheless, it is still pursuing a couple of impaired corporate accounts that could result in a positive surprise to its credit cost.

• CASA gaining traction. Although deposits were strong with 6.6% qoq growth, it largely from expensive Negotiable Instruments of Deposits (NIDs), which has in turn resulted in NIM slippage during the quarter (albeit partly mitigated by positive results from portfolio rebalancing in 9M18). Management reiterated CASA growth will soon kick start owing to its focus on non-retail CASA and business segments.

• ROE target appears challenging… As AMMB incurring investment in various areas to enhance its operations, and this could weaken net profit. That said, the ROE target of 10% in 2-3 years is challenging. Nevertheless, the successful delivery of current strategy (i.e. emphasizing on mass affluent, affluent, SME and mid-corp accounts) will lend a hand to the ROE target, albeit difficult.

• Asset quality improved. At current loan-loss- coverage of 101% via a transfer from retained earnings to regulatory reserves, management is satisfied with the level presently and sees no issue with the MFRS9 implementation which could come on board on 1 April 2018. Absolute GIL declined 0.6% qoq fueled by both retail and non-retail GIL.

• CET1 of still below industry. At 11.8% CET1 (fully loaded basis), AMMB’s CET1 remains the lowest in the industry. Amid the MFRS9 implementation, provisioning level is adequate to weather the impact of MFRS9.

Risks

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

Forecasts

• Unchanged.

Rating

HOLD ( ↔ )

• Despite lower than expected results, AMMB is progressing in the areas it wants to grow especially in the non-retail segment with higher loan booked. Its recent MSS initiative will ensure AMMB to be leaner and achieve ideal CTI of 55%.

Valuation

• Maintain our TP at RM4.70 , based on GGM i) COE of 11% ii) WACC of 9.1%. Maintain HOLD.

Source: Hong Leong Investment Bank Research - 12 Mar 2018