Despite a weaker set of 9MFY18 net profit of RM878.7m (-11% yoy), AMMB’s management remains focused on raising the operating leverage of the group. In our view, FY18E may not be an exciting year, and as such, AMMB’s share price may trade sideways. On the other hand, we see upside potential for profits in FY19E, post an organizational restructuring and revamp, although this looks already priced-in. Maintain HOLD and PT of RM4.00.

FY18E’s Financial Results Will be Weighed Down by One-offs

FY18E will not be an exciting year as AMMB’s financial results will be impacted by some one-offs such as a MSS exercise of RM128m (completed in Feb 18), establishment of business centers as well as a retail operational loss and normalization of provisions. Overall, for 9MFY18, each business division continued to show expansion in income as well as profit before provision, except for the business banking unit (-8.1% yoy) and the life insurance unit (higher actuarial loss).

Nonetheless, We See Clearer Skies in FY19E Vs. a Bumpy FY18E

That said, on a more positive note, as the organizational restructuring would be completed by FY18E, FY19E could potentially be a year with improved profits in the absence of one-off costs, a more favourable funding-base, expansion in fee income, improved loan momentum and lower impairments. Any potential credit recoveries will be a bonus.

A Longer Term ROE of 10% Could be Achievable

We understand that AMMB’s management team is striving towards improving its ROE (annualized 9MFY18 of 7.2%) and ahead of FY18E guidance of circa 7% (based on core net profit). In our view, a longer term ROE of 10% (in-line with peers) could be achieved with increased operating income, lower overheads (potentially a CIR of < 55%) and the absence of hefty impairments.

Maintain HOLD, PT Unchanged at RM4.00 (based on a 0.74x P/BV)

In our view, AMMB’s share price may stay flat at circa RM4.00 until the next financial year kicks in. Maintain HOLD, Price Target at RM4.00 (based on 0.74x CY18 BV) as we do not see much share price catalyst in the near term while returns and payback from the recent initiatives may not be seen in the immediate quarter. Upside/downside risks – improved/ weaker NIM, stronger/weaker loan growth, higher/lower credit recoveries.

Source: Affin Hwang Research - 20 Mar 2018