AMMB’s 9MFY18 net profit of RM878.7m (-11% yoy) came in below consensus and our expectations (RM1,338m, prior to revisions). The 3QFY18 results was disappointing due to higher allowances, which had offset recoveries in 1HFY18 while operating expenses was higher than our expectations (due to on-going investments for business expansion and digitization). On a more positive note, fund-based income grew at a robust 10% yoy as NIM held up well yoy. An ongoing legal suit initiated by Alliance Bank against AMMB may temporarily be a dampener on investor confidence on the stock. Downgrade from BUY to HOLD, based on a lower PT of RM4.00 (from RM4.90).

9MFY18 Below Affin’s Estimates, Down 11% Yoy

AMMB reported a 9MFY18 PATAMI of RM878.7m (-11% yoy), as allowances crept up in 3QFY18, offsetting credit recoveries seen in 1HFY18 while operating expenses (due to on-going investments to build the group’s capabilities) was higher than our earlier estimates. Results were below expectations by circa 10%, while news of a legal suit initiated by Alliance Bank (as reported by The Edge Weekly) against AMMB, naming a key personnel for misappropriating information via ex-employees of Alliance Bank had further weakened investor confidence. Otherwise, AMMB’s 9MFY18 operating income was supported by fund-based income growth of 10% yoy (with loan growth at 4.4% yoy) while NIM held up steadily for 9MFY18, rising +2bps to 1.98%. 3QFY18 net profit was down by 30% due to factors highlighted earlier.

Earnings Forecast Revised Down by 10-20% FY18E-20E

We revise down our FY18E-20E earnings by 10-20%, taking into account: i) a one-off MSS cost of RM120m in FY18E with subsequent cost savings of RM60-70m p.a.; ii) higher business expansion costs; and iii) higher provisions in FY18-19E.

Downgrade From BUY to HOLD, Price Target Lowered to RM4.00

Downgrade from BUY to HOLD at a lower Price Target of RM4.00 (based on 0.76x P/BV on CY18 BVPS) from RM4.90 subsequent to the earnings revisions. In our view, near-term outlook will be muted due to concerns of higher than expected provisions, as well as uncertainties with regards to the legal suit initiated by Alliance Bank (of which may affect AMMB’s aspirations to further expand its business banking unit).

Earnings & Valuation Summary

Source: Affin Hwang Research - 1 Mar 2018