AMMB reported a set of decent results, outperforming our FY20E estimates while coming in within consensus. Its 1QFY20 net profit was RM391.5m, up 12.6% yoy and 56.6% qoq (on a normalized basis). We saw positive drivers coming from improved NIM (+9bps qoq), increased lending to the targeted segments (retail SMEs, mortgages, business loans), higher non-interest income, lower overheads and a credit recovery (from a corporate loan writeback). The group also saw positive JAWs ratio of 2.3%. As the earnings outlook for AMMB is expected to be relatively steady given its stable funding base and sound loanbook, we believe that higher dividends could be on the cards this year. Upgrade to BUY (from HOLD) with our revised PT of RM5.30 (at a P/BV target of 0.85x) from RM4.80 subsequent to 5.6- 10.1% earnings revisions for FY20E-22E.

1QFY20 Results Above Affin’s Expectations

AMMB saw a 1QFY20 PATAMI of RM391.5m (+12.6% yoy) while rising by 56.6% qoq. Results were above Affin’s expectation by 8% while but within consensus estimates. 1QFY20 operating profit was 5.4% higher yoy on a 4.5% yoy growth in fund-based income and rebound in non-interest income (+33% yoy). During the period, although we saw a -1% year-todate (ytd) growth in loans (due to repayment of a corporate loan). However, its key targeted segment, i.e. retail SMEs, mortgages and business loans grew by +6%/+1.7%/+1.1% ytd respectively. AMMB saw better NIM (1QFY20: 1.87%), which rose 9bps qoq basis through lower funding cost and improved asset yields at the retail and business banking units. The group’s CIR also improved to 49.7% from 50.6% (1QFY19) and 54.3% (4QFY19).

Earnings Revision of +10.1%/+5.6%/+5.6% for FY20E-22E

We raise our FY20E/21E/22E earnings forecasts by +10.1%/+5.6%/+5.6% as we factor in a 4% lower overheads, lower net credit cost and better noninterest income against our previous forecasts.

Upggrade to BUY From HOLD, Price Target Revised to RM5.30

Upgrade to BUY (from HOLD) as stock’s risk-reward profile turns more attractive, with an upside of 27.9%. Our PT is now revised to RM5.30 (at a P/BV target of 0.85x) from RM4.80 (at )/BV of 0.78x) subsequent to 5.6- 10.1% earnings revisions for FY20E-22E. Our FY20E assumptions are a loan growth of 3% p.a., NIM of circa 1.85%, CIR of 50% and net credit cost of 12bps. Downside risks – funding cost pressure, lower credit recoveries.

Source: Affin Hwang Research - 23 Aug 2019