AMMB’s FY19 net profit of RM1,505.3m grew 33% yoy while 4QFY19 jumped 81.4% yoy, bolstered by non-recurring gains (RM270m) from a retail debt sale and corporate NPL writeback. FY19’s underlying net profit of RM1,273m (+5.9% yoy) was within consensus and Affin’s estimates. FY19 operating income was primarily supported by fundbased income (+2.7% yoy) while non-interest income pulled back due to unfavourable market conditions. Despite seeing a healthy loan growth of 5.7% yoy (from mortgages and SMEs), the group was hit by higher funding costs (in 3Q and 4QFY19) and an EIR adjustment which caused an 11bps NIM compression yoy to 1.89%. A final DPS of 15 sen was proposed, with FY19 totalling 20 sen. Maintain HOLD with a revised PT of RM4.80.

FY19 Results in Line With Affin and Market Expectations

AMMB saw a FY19 PATAMI of RM1,505.3m (+33% yoy), on the back of lower operating expenses (-12% yoy) and non-recurring gains totalling RM270m. At the operating level, operating profit was 2.1% lower yoy due to a modest fund-based income growth of 2.7% yoy while non-interest income was circa 15% lower yoy (due to weaker Markets, Fund Management and Investment Banking activities). On a qoq basis, the underlying net profit of RM250m was 31% lower yoy and 28.5% lower qoq.

Key Concern – Can AMMB Sustain Its Profitability Given a Weak F4Q?

On a positive note, we believe that management’s portfolio rebalancing initiatives, investment in digitization (infrastructure and partnerships) and beefing up its sales force (business banking team) will all lead to better efficiencies and operating profit for the group. This will potentially offset earnings pressure from overall funding costs and lower asset yields. Meanwhile, the potential release of capital and lower risk-weighted assets will also potentially lead to a dividend payout ratio of 40-45% (from 40%).

Maintain HOLD, Price Target Revised to RM4.80

Maintain HOLD, with a revised Price Target of RM4.80 (based on 0.78x P/BV on CY20E BVPS; previously 0.9x on CY19E). We keep our FY20E- 21E earnings forecasts unchanged and introduce FY22E. Our key assumptions are a loan growth of 5.5% p.a., NIM of circa 1.85%, CIR of 52% and net credit cost of 15-20bps. Downside risks – funding cost pressure and lower credit recoveries. Upside risks - an ease in NIM pressure and higher-than-expected profits from sale of NPLs.

Source: Affin Hwang Research - 29 May 2019