Period

3Q16/9M16

Actual vs. Expectations

AMBANK’s 9M16 core net profit (CNP) of RM1,022m is within expectations, accounting for 75%/73% of our/market estimates but 27% lower YoY, underpinned by margin compression and subdued loans growth.

Dividends

No dividend was declared.

Key Results Highlights

9M16 vs. 15, YoY

CNP declined by 27% attributed to a 22% fall in total income.

Net interest income (NII), Non-interest income (NOII) and Islamic banking income fell 17%, 36% and 3%, respectively.

NOII fell dragged by fall in: (i) insurance business (-11%), (ii) fee income (-17%), and (iii) investment & trading income (-68%).

Net interest margin (NIM) compressed by 41bps in which the Group saw a 0.7% decline in loans (vs. the industry’s +7.9% and our expectation of 1.5%).

Deposits grew by 1.0% (vs. our expectation of 2.0% and industry’s +1.8%). As deposits outpaced loans, LDR fell by 160bps to 96% (vs. industry’s 86.5%).

Cost-to-income ratio (CIR) jumped 11.6ppts to 56% as total income outpaced opex (vs. the industry’s 45%).

Asset quality improved by 8bps as GIL fell to 1.8% whilst there was a net credit recovery ratio of 0.19% (vs. credit charge ratio of 0.04% in 9M15). However, loan loss coverage fell 11ppts to 95%.

Annualised core ROE fell 5ppts to 8.7% (vs. our expectations of 9.2%).

CET1 is flattish at 10.5% whilst CAR improved by 10bps to 15.8% (after proposed dividends).

3Q16 vs. 2Q16, QoQ

Core profit fell 21% due to higher opex by 14% despite RM71m in writebacks.

Total income fell 4% dragged by: (i) NII at 9%, and (ii) NOII at 2%, mitigated by a 4% rise in Islamic banking income.

NIM plunged by 14bps to 2%. Headline CIR swelled higher 10ppts to 63%.

LDR fell by 2ppts to 96% as loans growth was flat while deposits registered a growth of 1.8%.

Asset quality improved as GIL fell 5bps to 1.8% and there was a net credit recovery of 0.33% vs. a recovery of 0.29% in the last quarter.

Outlook

Subdued economic growth and stiff price-based competition will further impact loans growth and NIMs. We expect lower loan provisions due to better collection efforts as shown in 9M16 for the remainder of FY16.

Change to Forecasts

As earnings are in line, we make no changes to our earnings forecast.

We maintained our assumptions for FY16/17; (i) Loans at 1.0%/2.0%, (ii) Deposits at 3%/4%, (iii) NIMs at 1.9%, (iv) CIR at 52%/49%, (iv) Credit charge at 8bps/16bps, and (v) ROE at 9.3%/9.6%

Rating

Maintain MARKET PERFORM

As catalyst are lacking on the back of a challenging environment, we maintain Market Perform.

Valuation

We revised our TP upwards to RM5.57 (RM5.42 previously) as we roll over our valuation base to FY17E. This is based on 1.06x FY17 P/B where we utilised: (i) COE of 9.2% (unchanged), (ii) FY17 ROE of 9.6 (previously CY16 ROE of 9.5%), and (iii) terminal growth rate of 2.5% (unchanged).

Risks

Steeper margin squeeze from tighter lending rules and stronger-than-expected competition.

Slower-than-expected loans and deposits growth.

Higher-than-expected rise in credit charge as result of a potential up-cycle in non-performing loan (NPL).

Source: Kenanga Research - 29 Feb 2016