In-line, Quarterly Moderation Expected

AMMB reported a set of decent results, within our and consensus FY20 estimates, with 6MFY20 net profit at RM711m, up 2.2% yoy while the moderation in 2QFY20 earnings had been expected owing to the tapering-off in the retail book’s credit recovery and absence of corporate loan writebacks. The key takeaways from the results:- i) provisioning will continue to normalize, with a credit charge target of 15-20bps for FY20; ii) loan growth pipeline remains healthy – more drawdowns are expected in 2HFY20 despite flat year-to-date growth; iii) the ROE guidance has been lowered to 8.0-8.5% (from 9%); and iv) with more capital-cost release, the dividend payout ratio is now raised to 45-50% from 40-45%. Maintain BUY, despite lower EPS forecasts for FY21E-22E and a lower 12-month PT of RM4.90.

Results Broadly In-line – Growing in Targeted Segments

AMMB reported a 6MFY20 PATAMI of RM711m (+2.2% yoy) on the back of a decent operating profit growth of 6.5% yoy, driven by a 6.2% yoy growth in fund-based income while non-interest income declined marginally by 2% yoy (as trading and investment income was offset by lower insurance income). Despite seeing flat ytd loan growth (partially affected by repayment of a corporate loan), management remains upbeat about a stronger loan growth in 2HFY20. Its key targeted segments, i.e. retail SMEs, mortgages and business loans, grew by 14%, 3% and 5% ytd respectively. AMMB saw its 6MFY20 NIM decline by 8bps yoy to 1.89%, largey due to repricing effects of the OPR cut. The group’s 6MFY20 CIR improved to 49.4%, with better income growth.

Earnings Revision of -3.7% and -3.6% for FY21E-22E

In line with our house view of a weaker economic outlook in 2020-2021, we lower our FY21E-22 earnings forecasts by 3.6%-3.7%, as we lower our assumption on loan growth to 3% from 5.5% previously, while raising our net credit costs to 24-28bps from 12-15bps previously.

Maintain BUY With a Lower Price Target of RM4.90

Maintain BUY, as AMMB is trading at an attractive valuation of 0.66x P/BV multiple. Even with our lower Price Target of RM4.90 (0.8x CY20E P/BV; previously 0.85x), we see upside potential of 23%. Our FY20E assumptions: loan growth of 3% p.a., NIM of circa 1.85%, CIR of 50% and net credit cost of 20bps. Downside risks: funding cost pressure, lower credit recoveries.

Source: Affin Hwang Research - 2 Dec 2019