On a conference call yesterday, AMMB’s management provided a little more clarity on the sale of RM554m worth of non-performing loans (NPLs) on 3 Jan19. We believe that it is highly likely for AMMB to book in a meaningful gain in FY19E (as these NPLs have been fully written-off from its books), should the sale be completed by 31 Mar19. The recoveries are expected to enhance its capital adequacy ratios by +10bps with every RM100m gain, based on our estimates. Maintain HOLD. Our PT has been adjusted higher to RM5.00 from RM3.70, as we raise FY19E’s net profit by 23.8%, assuming a potential net profit impact of RM300m.

AMMB Disposes NPLs Worth RM554m to Aiqon Capital

To recap, AMMB announced a proposed disposal of its NPLs worth RM554m to Aiqon Capital (which is majority owned by Ibrahim Hussain, the son-in-law of AMMB Holdings’ substantial shareholder Tan Sri Azman Hashim) on 3 Jan2019. These NPLs are comprised of: i) RM428.1m from AmBank’s portfolio to Aiqon Amanah; and ii) RM125.8m from AmBank Islamic to Aiqon Islamic. The final sale price of these NPLs will be subject to an adjustment mechanism after the cut-off date (which is to be agreed on 28 Feb19), taking into account the collection/receipts and agreed costs pertaining to the portfolio from the cut-off date up to the completion date. There is also a clause for the repurchase (by AMMB) of non-conforming accounts according to representations made under the respective SPA.

Maintain HOLD, PT Raised to RM5.00 From RM3.70

Maintain HOLD. But, we raise our Price Target for AMMB from RM3.70 (based on 0.68x P/BV on CY19 BVPS) to RM5.00 (based on a revised 0.9x CY19E P/BV target on CY19E BV) as we see positive traction coming out of its organizational restructuring and a sound loanbook (GIL ratio at 1.72% as at 2QFY19) in the absence of hefty impairments. We also factor in a potential net profit impact of RM300m in FY19E (net profit raised by 23.8%) from the proposed disposal of NPLs. AMMB has continued to see an improved earnings stream (in 1HFY19) against FY18, driven primarily by overhead reduction and fund-based income growth (on the back of above-industry loan growth of 7.5% yoy as at Sept18). On the downside, NIM pressure is expected to rise (owing to deposit competition) while the AMMB Group’s credit recoveries are normalizing and tapering-off.

Source: Affin Hwang Research - 8 Jan 2019