• AMMB will be taking an additional one-time impairment totalling RM1.937bn related to: i) goodwill impairment (RM1.789bn) of its conventional banking/IB business and ii) a RM148m impairment on carrying value of its REIT associate
• As such, we cut FY21E net profit by 100.3% as we account for the RM1.937bn impairment. Meanwhile, we trim FY22E/23E EPS/core EPS by 7.6-7.7% to take into account the dilution impact arising from the RM825m private placement
• Maintain HOLD, PT re-rated to RM3.30 (based on a higher 0.7x P/BV target on revised CY22E BVPS) subsequent to the impairment exercise. Upside/downside risks: lower/higher impaired loan provisions; higher dividends

Making a One-time Charge of RM1.937bn to P&L in 4QFY21

AMMB made an announcement last Wednesday that the group has concluded its annual goodwill review and other impairment after taking into account two factors that were previously absent in previous years, i.e.: i) the adverse effects of COVID- 19 on economic growth and ii) the RM2.83bn settlement with the Ministry of Finance. As such, the group will be making a one-time impairment charge of RM1.937bn in 4QFY21 comprising: i) a goodwill impairment charge of RM1.789bn of its conventional and investment banking business and ii) a RM148m impairment on carrying value of its investment in an associate company (AmFirst REIT).

FY21E Net Profit Cut by 100.3%; FY22E/23E EPS Trimmed by 7.6-7.7%

As we factor in the impact of the RM1.937bn impairment in 4QFY21, FY21E’s net profit is hence reduced by a further 100.3% to a net loss of RM3,866.8m. FY21E core net profit is not impacted as it is one-off. Meanwhile, as we also take into account the dilution impact of new shares issued (300m) arising from the completion of the RM825m private placement, we also trim FY22E/23E EPS and core EPS by 7.6%- 7.7%. We have also taken into account some marginal off-setting impact of additional interest income earned from the placement proceeds.

Maintain HOLD, With Price Target Re-rated to RM3.30 (from RM2.90)

We maintain our HOLD rating on AMMB, although our 12-month PT is now re-rated to RM3.30 (methodology changed: 0.7x P/BV target on CY22E BVPS of RM4.71) from RM2.90 (based on 0.52x P/BV on CY22E BVPS) given a 0.57-59ppts enhancement in FY22E/23E ROE through goodwill impairment. Dividends are expected to resume from FY22E onwards as asset quality improves, given a potential return to normalcy of its retail loanbook. Our assumptions for FY21E/22E/23E: loan growth at 3.5-4.0%; NIM at 1.81- 1.83, net credit cost at 90/82/82bps and CIR at 46-49%.

Source: Affin Hwang Research - 30 Apr 2021