• AMMB will make a RM2.83bn provision in its 4QFY21 results to reflect the Global Settlement of RM2.83bn with the MOF, representing the full and final settlement in relation to all historical matters related to 1MDB and its entities
• The estimated proforma impact on AMMB’s CET 1 and Total Capital Ratio are 251bps, whereby CET1 will be reduced from 13.52% to 11.01% and Total Capital ratio reduced from 16.39% to 13.88%. No final dividends will be proposed for FY21
• Maintain SELL with our revised TP of RM2.90 (based on 0.5x P/BV target on CY22E BVPS)

AMMB Arrived at a Global Settlement of RM2.83bn With MOF

AMMB in a media statement on 26 Feb21, announced that it has reached an agreement with the Ministry of Finance in respect of the Global Settlement sum amounting to RM2.83bn. This sum represents the full and final settlement in relation to all historical matters pertaining to 1MDB and its related entities. The Group has since strengthened and enhanced its processes to meet the current stringent regulatory standards.

Some Earnings Revisions for FY21E/22E/23E of -262%/-8.5%/-7.9%

We concur with management that settlement of these legacy matters will enable the AMMB Group to focus on executing its future business strategies/undertakings, but inevitably, funding cost in the group will be higher in future, while FY22-23E ROE remains unexciting vis-à-vis peers at circa 9-10%. In our forecasts, we have revised down FY21E’s net earnings by 262% in light of the provision sum of RM2.83bn in 4QFY21. Meanwhile, we also made an assumption of the additional funding cost in FY22-23E amounting to RM130m p.a. (based on funding cost of 4.6% p.a.). This funding cost results in a -8.5% and -7.9% impact on FY22-23E earnings while further dampening NIM by 8bps. We have also lowered our dividend assumption from a payout ratio of 30% to 25- 26%.

Reiterate SELL, Price Target Cut to RM2.90 From RM3.40

We maintain our SELL with our PT revised to RM2.90 (based on a 0.5x P/BV on CY22E BVPS) (from RM3.40) underpinned by FY22E ROE of 6.4% and cost of equity of 9.5%. We think sentiment on the stock will remain lacklustre while we continue to have concerns n NIM given higher funding cost in the near future with potential RM2.8bn Tier-2 Capital to be raised. Our revised assumptions for FY21E/22E/23E: loan growth at +5%/+4%/+4%; NIM at 1.89%/1.89%1.92%, net credit cost at 85/82/82bps and CIR at 45-47%. Upside risks: interest rate cuts/hikes; higher/lower impaired loan provisions.

Source: Affin Hwang Research - 1 Mar 2021