AMMB’s 1QFY18 net profit of RM328m (+1.6% yoy) was within consensus expectations and our estimates. NIM was up 8bps yoy arising from loan repricing activities and strategies to reduce funding cost. Credit recoveries are normalizing, while management guided on a stable asset quality outlook. Upgrade to BUY based on an unchanged PT of RM5.20.

1QFY18 Within Expectations; Income Momentum Sustained

AMMB reported a 1QFY18 PATAMI of RM328.3m (+1.6% yoy), supported by robust fund-based income growth of 8.8% yoy and continuous credit recoveries (at 5bps). 1QFY18 net profit accounted for 22% of our FY18E and 23.4% of consensus – we consider the results in-line with expectations as we expect further improvement arising from stronger netinterest-income (with steady NIM) and cost-optimization strategies. 1QFY18 NIM edged up 8bps yoy to 2.02%, due to asset repricing of the corporate loans, increase in SME loans growth and overall lower funding cost from the cut in OPR and conscious strategy to reduce corporate deposits and boost CASA. Ytd loan growth stood at 2%, and we believe will be on track to meet our FY18E forecast of 4% yoy. Qoq, net profit was down 2.2% slower non-interest income and lower recoveries.

GIL Ratio Remained Steady Qoq at 1.88%, But LLC Is Well-secured

AMMB’s GIL ratio remained steady at 1.88% in 1QFY18 after it crept up by 32bps qoq in 4QFY17 (due to a corporate loan impairment). In our view, this may not be overly alarming as we believe that these corporate accounts are well-collateralized. AMMB’s loan loss cover (LLC), including regulatory reserves, stood at 79.8% as at 1QFY18.

Upgrade to BUY From HOLD; PT Unchanged at RM5.20

We Upgrade Our Rating From HOLD to BUY, With a Price Target of RM5.20

(based on 0.9x P/BV on CY18). The recent selldown on AMMB’s stock is unjustified in our view, subsequent to the aborted merger plan with RHB Bank while there were concerns on some contingent liabilities in the group. AMMB’s management reassured that these were due in part to the ordinary course of business and not a major concern. Top on management’s agenda in FY18-19E include: i) a gross impaired loan (GIL) ratio below 1.88%; ii) a positive JAWs, with a CIR of ≤55% in FY18E; iii) an ROE target of 10%; iv) being a Top 4 bank in wholesale, SME and retail-banking. Our FY18-20E assumptions: i) credit costs 2.5-15bps; ii) stable NIM at 2.1% with liability management; and iii) 4% yoy loan growth.

Source: Affin Hwang Research - 25 Aug 2017