AMMB reported a 4QFY20 net profit of RM247.5m (-35.2% qoq; -1% yoy), while FY20 saw a net profit of RM1,340.7m (-10.9% yoy). Excluding one-offs, i.e. a debt sale gain of RM285m in FY19 and the impact of a RM167.3m macro provision in FY20, underlying net profit grew by 15% yoy. Results were within Affin’s and consensus estimates. 4QFY20 was a dampener to the overall FY20 results, largely due to a pre-emptive macro provision. Nonetheless, we upgrade AMMB from Sell to HOLD on valuation (as the downside has narrowed), with an unchanged 12-month Price Target of RM3.00. We expect a recovery in FY22, though FY21 will likely continue to see heightened provisions, which we believe have been priced in.

Operationally Steady Results Dampened by Pre-emptive Provision

For FY20, AMMB’s operating results have been quite steady, with overall fund-based income up 10.5% yoy and non-interest income up 7.5% yoy. Operating expenses were relatively stable yoy (with CIR at 50% vs. 54.3% in FY19). FY20 pre-tax profit declined 15% yoy, however, as management has provided additional macro overlays of RM167m in the provisions for 4QFY20. FY20’s net credit cost (NCC) was 30bps vs. a 30bps credit recovery in FY19 (which includes a debt sale gain). We have factored in a NCC of 39bps for FY21E and 32bps for FY22E.

Loan Growth and NIM Likely to Taper Off in FY21E

Though AMMB saw better-than-industry loan growth at 5% yoy, and a NIM improvement of 5bps yoy to 1.94% in FY20, we expect a moderation in FY21E’s operating income, as we expect contraction in overall loan growth at circa 2% due to weak economic circumstances and cautious demand. Meanwhile, as a result of the 50bps OPR cut in May, we expect the FY21E NIM to narrow further to 1.8%.

Upgrade to HOLD From Sell. Price Target Unchanged at RM3.00

We upgrade AMMB from Sell to HOLD on valuation with a PT of RM3.00 (based on a 0.46x P/BV on CY21E BVPS). The Day-1 modification loss impact, which will be recognised in the next quarter, is estimated to have a net impact of RM20m, but the subsequent unwinding impact will result in a minimal impact to the bottomline by year-end. AMMB has announced a 7.3 sen final DPS, for a total of 13.3 sen in FY20 vs. 20 sen in FY19 (scaling down payout ratio to 30% from 45-50%). Downside/upside risks: interest rate cuts/hikes; higher/lower impaired loan provisions

Source: Affin Hwang Research - 30 Jun 2020