AMMB reported a significant jump in 3QFY19 net profit, up 60% yoy to RM350m and 9MFY19 net profit of RM1,045.6m (+19% yoy). This was largely due to recoveries although management guided that the trend is tapering-off. At the pre-provision operating level, the 9MFY19 results were broadly in-line with Affin and consensus estimates. Funding cost pressure continued to eat into AMMB’s 9MFY19 NIM, down 5bps to 1.93% despite seeing loan growth of 6% yoy. Other positive key takeaways include improved operating leverage for 9MFY19 (JAWS of 10.75%), 9MFY19 CIR down to 51.6% (from 58.2% in 9MFY18) and net credit recoveries. We keep our FY19-21E forecasts unchanged in light of funding cost pressure on NIM and normalizing credit charges. Maintain HOLD and Price Target of RM5.00.

9MFY19 Results Broadly In-line With Affin’s and Market Expectations

AMMB saw a 9MFY19 PATAMI of RM1,045.6m (+19% yoy), on the back of lower operating expenses (-9.5% yoy) and marginal net operating income growth (+1.2% yoy). 9MFY19 fund-based income was up +4.4% yoy (despite stronger loan growth traction of 6.0% yoy) while non-interest income came in 16% lower yoy (due to weaker Markets, Fund Management and Investment Banking activities). AMMB continued to see negligible net credit recovery (4bps) in 9MFY19, partially driven by several large corporate accounts. On a qoq basis, 3QFY19 net profit was flat owing to a 5% qoq decline in the net operating income – driven by non-interest income (-29% qoq). NIM continued to see a 3bps compression qoq.

A Potential One-off Windfall in 4QFY19 From Sale of NPLs

AMMB may potentially complete the sale of the RM554m worth of NPLs (written-off) by 31 Mar 2019, and hence expect to book-in a profit from the sale. In our forecast for FY19E, we have factored-in a one-off gain of RM300m (Affin’s estimate) for 4QFY19.

Maintain HOLD, Price Target Maintained at RM5.00

Maintain HOLD and Price Target of RM5.00 (based on 0.9x P/BV on CY19 BVPS). Though AMMB has continued to see an improved earnings stream (throughout 9MFY19), driven primarily by credit recoveries, overhead reduction and fund-based income growth, we are of the view that the trend could be tapering-off. Downside risks – rising NIM pressure, lower credit recoveries. Upside risks - an ease in NIM pressure and higher-thanexpected profits from sale of NPLs.

Source: Affin Hwang Research - 22 Feb 2019