1HFY19 net profit of RM695.7m (5.5% YoY) came in above expectations, mainly on softer overhead expenses. Loan growth advanced by 4% in 2QFY19 (vs. 2% in 1Q19) due to higher growth at all segments. Deposits grew at a faster pace, by 5% to RM100bn. Asset quality improved, with GIL declining to 1.72% in 2QFY19. Maintain HOLD rating with higher TP of RM4.30.

Better results. 2Q19 net profit of RM348.2m (QoQ: +0.2%; YoY:+5.0%) took 1H19 net profit to RM695.7m (+5.5%). The results came in above expectations, representing 61% and 54% of our and consensus full-year estimates, mainly on softer overhead expenses.

Dividend. AMMB announced interim DPS of 5 sen (ex-date: to be determined later)

QoQ. 2QFY19 total operating income advanced to RM1.24 bn (+5.5%), driven mainly by a 13% increase in NOII (arising from higher investment and trading income) but was partly offset by loan loss provision of RM35m (vs. a writeback of RM37m in previous quarter). NII growth, on the other hand, was flattish, lower NIM (-11bps) was offset by QoQ loan growth of 2%.

YoY. The 1.5% increase in total operating income was driven mainly by a 4.1% increase in NII (aided by loan growth of 4%), but partly mitigated by a 1.4% decline in 1.4% (linked to lower investment bank division). Net profit advanced by 5%, on the back of higher operating income and lower overhead expenses, but partly offset by loan loss provision of RM20.6m (vs. a writeback of RM27.1m last year).

YTD. 1HFY19 net profit increased by 5% to RM696m, aided by lower opex (-10%) and higher NII (+4.1%) but partially offset by subdued NOII by -6.6% YoY and loan loss-provision of RM21m (against net writeback of RM48m in 1H18).

Loan & Deposit. Loan growth advanced by 4% in 2QFY19 (vs. 2% in 1Q19) from higher growth at all segments. Retail banking registered a healthy loan growth of 3% YoY in 2QFY19 thanks to higher growth in mortgage (+2.2%). Wholesale and business banking loan growth was also higher by 2% and 0.9% respectively. Deposits grew at a faster pace, by 5% to RM100bn as AMMB has been focusing on building retail CASA (which registered a commendable growth of 14%, resulting in CASA advancing to 21.8% from 20.8% in 2QFY18).

NIM. NIM eased by 11bps QoQ to 1.91% on the back of higher funding cost in view of repricing of longer time deposits which was offset marginally by higher accumulation of retail CASA.

Asset quality. Asset quality improved, with GIL declining to 1.72% in 2QFY19 (from 1.77% in 1QFY19), backed by declining GIL in real estate sector but partially offset by the increase in the manufacturing sector.

Forecast. We adjust our FY19-20 net profit forecasts by 6%-16%% to reflect better credit cost on the back of normalising loan loss provision in the upcoming quarters. We also make adjustment to the loan and deposits growth target respectively.

Maintain HOLD with higher TP of RM4.30 (from RM4.15) as we introduce new earnings forecast and rolled over into FY20 valuations. AMMB hit its FY19 KPIs during 1HFY19 results, including those for cost-to-income and CET1 and management is positive to keep up the momentum in the coming quarters. TP is based on GGM of (i) COE of 12% and (ii) WACC of 9.8%.

Source: Hong Leong Investment Bank Research - 23 Nov 2018