Period

2Q16/1H16

Actual vs. Expectations

AMBANK’s 1H16 core net profit (CNP) is within expectations, accounting for 52%/49% of our/market estimates but 6.7% lower YoY, underpinned by margin compression and subdued loans growth.

Dividends

5.0 sen/share was declared, lower than the preceding period of 12.0 sen/share.

Key Results Highlights

1H16 vs. 1H15, YoY

CNP declined by 6.8% attributed to the fall in net interest income (NII) and non-interest income (NOII) of 15.7% and 44.4%, respectively.

Net interest margin (NIM) compressed by 36bpts while the Group also saw a subdued loan growth of 0.3%.NOII was dragged by drop in its insurance business by 9.3% and decline in investment & trading income by 77.8%.

The marginal gross loans growth of 0.3%, dragged by term loans, hire purchase and credit card segments at -3.0%, -10.4% and -16.8% respectively. Deposits grew by 5.4%.

Cost-to-income ratio (CIR) jumped to 52.1% vs 43.3% in 6M15 (industry CIR at 51.2%) as total Income fall outpace opex decline.

Asset quality deteriorated as gross impaired loans ratio (GIL) went up by 16bpts to 1.95%.There was a net credit recovery ratio of 12bpts (vs credit charge ratio of 20bpts in 6M15).

Annualised core ROE fell by 150bps to 9.3%.

CET1 improved by 8bpts to 10.8% whilst CAR fell by 76bpst to 15.8%. 2Q16 vs. 1Q16, QoQ

Core profit improved by 12.7% due to: (i) higher NII by 1.9%, and (ii) lower taxation rate of 18.6%.

NIM plunged by 3bpts to 2.10%. Headline CIR swelled higher 3.1ppts to 53.7% (from 50.6% in 1Q16)

LDR jumped by 2ppts as loans growth outpaced deposits growth. Loans grew 1.4% vs deposits that declined 0.6%. Asset quality deteriorated as GIL inched up by 15bpts but there was a net credit recovery of 29bpts.

Outlook

Subdued economic growth and stiff price-based competition will impact further on loans growth and NIMs. We expect lower loan provisions due to better collection efforts as shown in 1H16 for the remainder of FY16.

Change to Forecasts

Net profits for FY16E revised downwards (to account for lower credit costs) to RM1,366m (-0.4%) while CNP for FY17E lowered to RM1,491m (-7.6%).

Our dividends forecasts have also been changed to a dividend payout of 41% (from 43% previously) with dividend per share of 18.6 sen (vs 19.6 sen previously).

Rating

Maintain MARKET PERFORM

As catalyst are lacking on the back of a challenging environment, we maintain MARKET PERFORM.

Valuation

Our TP is lowered to RM5.42 (from RM5.88). This is based on 1.03x CY16 P/B (previously 1.11x CY16 P/B); we utilised: (i) COE of 9.2% (unchanged), (ii) CY16 ROE of 9.5% (previously: 10.3%) and (iii) terminal growth rate of 2.5% (unchanged).

The lower P/B multiple is to reflect slower growth and weaker ROE generation moving forward.

Source: Kenanga Research - 20 Nov 2015