AMMB reported stronger operating income for 9MFY20 (+9.5% yoy), supported by robust non-interest income (+34.5% yoy) and fund-based income (+5.9% yoy). 9MFY20 net profit of RM1.09bn (+4.5% yoy) came in within our and consensus estimates. The key takeaways from the results: i) loan growth as at 3QFY20 rose by 4.2% yoy and 2.7% ytd, underpinned by a healthy pipeline; ii) provisions improved qoq, due to absence of large corporate provisions, but yoy credit cost normalized to 16bps; iii) 9MFY20 ROE at 8.1%, in-line with management guidance of 8.0-8.5%; and iv) overall minimal impact from the OPR cut last year, as 9MFY20 NIM continued holding up at 1.93%. Maintain BUY with a revised Price Target of RM4.80 as we factor-in the impact of a total 50bps OPR cut in FY20E-22E earnings.

Results Broadly In-line – Loan Growth Picking Up

AMMB reported a 9MFY20 PATAMI of RM1,093m (+4.5% yoy) on the back of a decent operating profit growth of 9.5% yoy, driven by a 5.9% yoy growth in fund-based income while non-interest income grew by 34.5% yoy (on the back of fixed-income trading gains and fee income). Loan growth picked up strongly sequentially, up 2.5% qoq (in-line with what management guided last quarter). Its key targeted segments, i.e., retail SMEs, mortgages and business loans, grew by 24.6%, 5.1% and 8.9% ytd respectively. AMMB saw its 9MFY20 NIM steady at 1.93% yoy, despite the OPR cut last May 2019. The group’s 9MFY20 CIR improved to 49.6% (-2ppts yoy), in-line with better income growth.

Earnings Revisions of -2.2% / -2.2% / -1.9% for FY20E/FY21E/22E

We make minor adjustments to AMMB’s earnings forecasts as we price in the negative impact of a 50bps rate cut. On average, a 25bps rate cut would cause circa RM20-30m reduction in its net interest income (~2bps on NIM).

Maintain BUY With a Lower Price Target of RM4.80 (from RM4.90)

Maintain BUY, as AMMB is trading at an attractive valuation of 0.63x P/BV multiple. Even with our lower Price Target of RM4.80 (0.8x CY20E P/BV; previously 0.85x), we see upside potential of 27%. Our FY20E assumptions: loan growth of 3% p.a., NIM of circa 1.9%, CIR of 50% and net credit cost of 20bps. Downside risks: funding cost pressure, lower credit recoveries.

Source: Affin Hwang Research - 28 Feb 2020