AMBANK conducted a conference call for analysts yesterday on the post GE14 impact for AMBANK. Moving forward we feel positive as most of the perceived negative impacts have been contained beforehand. Reiterate our OUTPERFORM call with an unchanged TP of RM4.90.

No concerns going forward. Management explained that AMBANK conducted a number of scenarios and stress test prior to GE14 and found no significant impact under various scenarios. Management added that the negligible impact could probably due to its apolitical stance in its lending policy as well as business conduct.

Portfolios are well diversified. Management emphasised that their loan portfolios are well diversified and neutral. SME portfolio (Dec 17: 17% of gross loans) is well diversified into various sectors across the board. AMBANK’s loan portfolios are also not exposed to any controversial projects. Management added that exposure to infra project such as the HSR and ECRL are negligible as well. In terms of sectorial exposure, management highlighted that construction & infra- related projects are at ~8% (to total loan) with exposure to GLCs at ~6% (to total loan) with the added advantage of good credit risks on these companies.

Asset quality manageable. Management pointed that its GIL is still contained at around RM1.7b (Dec 17: RM1.67b or at 1.8%). Around RM600m of the impaired loans are from the commercial real estate sector with nearly RM500m exposed to 2 accounts). Nevertheless, management pointed out that its impaired loans are well collateralized. Its exposure to the Commercial Real Estate sector is at 15% with residential property at 26% (as of Dec 2017) and management is satisfied with the asset quality of both sectors. We are positive on its exposure to the residential mortgage as its portfolio is exposed to mid- end affordable housing and AMBANK is not focussed on the low-end affordable housing and high-end properties due to the perceived oversupply situation in these segments.

Traction continues in 4Q18. Management also highlighted that its 4Q18 results will be on track with traction coming from its fund-based income segment with better NIM. No uptick in regulatory reserves and its stable relative to 3Q18. Going forward, management also expects impact on CET1 arising from MFRS9 to be neutral. Our key assumptions for FY18 estimates are as follows: - (i) loans growth at <5%, (ii) credit costs at 4bps, and (iii) NIM at ~1.95%.

TP and call maintained. We reiterate our TP of RM4.90 based on a blended FY19E PB/PE ratio of 0.8x/9.4x. The PB (at -1SD below mean) is to reflect a cautious outlook on ROE ahead (impacted by MFRS9) and PER (-1SD average mean) is to reflect our cautious optimism for loans going forward. We believe growth is gaining traction coupled with elevated NIM. Valuations are undemanding with share price trading below its 1-year PB/PE average of 0.8x/10x coupled with the far superior dividend yield of 5.6%; we reiterate our OUTPERFORM call.

Source: Kenanga Research - 17 May 2018