AMMB saw a stronger 4QFY17 net profit (+7.4% qoq) while FY17 net profit stood at RM1.3bn (+1.7% yoy), within consensus expectations but below ours by 9%. NIM saw improvement in 2HFY17 vs. 1HFY17 arising from active liability-management. Credit recoveries also propped up an otherwise flat FY17 operating income. Maintain HOLD, with PT at RM5.20 (from RM5.10). AMMB announced that its shares will be suspended from trading on Bursa Malaysia on 1 June 2017, pending a major announcement.

FY17 PATAMI Below Our Expectation, But Stronger Rebound Qoq

AMMB reported a FY17 PATAMI of RM1,324.6m (+1.7% yoy), which was underpinned by a stronger 4Q17 PATAMI of RM335.8m (+7.4% qoq, +20% yoy). The full-year PATAMI was within consensus expectations but was 9.2% below our expectation due to our higher assumption of noninterest income. AMMB’s 4QFY17 PATAMI was underpinned by a rebound in: i) fund-based income (+6.9% yoy, +5.1% qoq); and ii) a sharp 34% yoy and 94% qoq growth in non-interest income. NIM continued to edge up higher in 4Q17, rising +4bps qoq to 2.06%, though on a full-year basis, it averaged at 1.98% (vs. 2.02% in FY16). Margin compression for FY17 was mitigated by AMMB’s active management of the funding mix and deposit costs (by pushing CASA growth) and through expansion of SME loans (+10% yoy). Meanwhile, the positive impact of the on-going portfolio rebalancing initiatives has been reflected in a credit recovery of 19bps in FY17 (FY16: 19bps credit recovery), though it tapered off in 4QFY17 to an annualized 10bps (and will likely further ease going into FY18).

Strong uptick in GIL ratio qoq to 1.86%, but LLC is still well secured

AMMB’s GIL ratio saw a 32bps uptick to 1.86% in 4QFY17 as a result of a corporate loan impairment (wholesale banking GIL ratio rose 82bps qoq to 2.46%). In our view, this may not be overly alarming as AMMB’s loan loss cover (LLC), including the collateral values of impaired loans, stood at 124% vs. 79.7% as at 4QFY17.

HOLD, PT Raised to RM5.20; Material Announcement Pending

We Maintain Our HOLD Rating, With Our 12M Price Target at RM5.20 (based on 0.9x P/BV on CY18), raised from RM5.10 (at 0.9x P/BV on CY17). Our forecasts for FY18-19E unchanged and we introduce our FY20 forecasts. Top on management’s agenda in FY18-19E include: i) further lowering the gross impaired loan (GIL) ratio from 1.86%; ii) targeting negative expense growth, with a CIR of ≤55% in FY18E; iii) an ROE target of 10%; iv) being a Top 4 bank in wholesale, SME and retailbanking. Our FY18-20E assumptions: i) credit costs 2.5-15bps; ii) stable NIM at 2.1% with liability management; and iii) loan growth at 4% yoy.

Downside and Upside Risks

Downside risks: i) substantial increase in the amount of allowances and erosion of capital ratios with the adoption of the FRS 9 standards, commencing 1 Jan 2018; ii) stagnant loan growth; iii) negative impact of de-tariff on the insurance business; and iv) competition from bigger investment banks; Upside risks: i) stronger growth in the affluent retail, SME and corporate segments; and ii) improved efficiency, driven by the new core banking system implementation.

Source: Affin Hwang Research - 1 Jun 2017