AMBANK’s 1Q19 performance was commendable as loans momentum continued but was offset by weak fee-based income performance. Credit recovery was a surprise, but we expect normalization of credit charge ahead. While we expect its loans to perform as guided, we are concerned on NIM pressure ahead. No change in our conservative FY19E earnings; thus, we maintain TP at RM4.50 and reiterate our OUTPERFORM call.

In line. 3M18 CNP of RM347.6m is within expectations, accounting for 29%/27% of our/market estimates. The positive deviation stems from a write-back of RM8.6m (vs. our expectation of a charge of RM299m). No dividend declared as expected in Q1.

Loan momentum continued with unexpected write-backs. 3M19 CNP of RM347.6m improved by +5.9% YoY on account of lower write- backs and lower opex as top-line was subdued at +1.3% YoY. The subdued top-line was dragged by falling fee-based income (-4.0% YoY) due to falling investment & trading income (-RM50m or -96% YoY) despite income from insurance business surging 25.9% to RM155m. Both fund-based income and Islamic banking income were reasonable at +3.6% YoY and 5.0% YoY, respectively. Loans continued its traction improving by 6.1% (vs. system’s loans/guidance/expectations of 4.1%/~6%/~6%) but downward lending yields pressure coupled with steep funding costs pressure propelled NIM downwards by 20bps to 1.9%. Thanks to its MSS in 2H18, opex (-7.3%) outpaced top-line (+1.3%) with CIR falling 5ppt to 51.4% (vs. guidance and expectations of <55%). YoY, asset quality improved 11bps to 1.8% with a credit recovery at 4bps (vs. our expectations of 25bps credit charge) due to strong recoveries amounting to RM42m. QoQ, CNP grew +37.2%, underpinned by: (i) lower opex, and (ii) writebacks (albeit lower than Q4 vs expectation of a credit charge). Top-line was a drag, falling by 6.9% as fee-based income and Islamic banking income fell 16.8% and 5.4%, respectively. Fund-based income improved reasonably (+1.4%) as loans improved +2.2% but NIM fell 8bps to 1.9%. While there was a slight deterioration in asset quality with GIL higher (by +7bps) to 1.8%, there was a credit recovery of RM8.6m for the quarter.

Loans momentum to continue but further downside pressure on NIM likely. We expect loan tractions to continue on the premise that its loans are well diversified with exposure to construction & infra and GLCs are low at 8% and 6%, respectively, of total loans with SMEs and mortgages (contributing to 54% of total loans) expected to be the main driver of loans ahead. We are, however, concerned on further downside pressure on NIMs as competitive deposits intensify, but we expect it to be mitigated by lower funding costs (from higher intake of SMEs and Mid-Corp ahead).

No change in Earnings. As results are in line, our FY19E earnings are maintained at RM1.20b. TP maintained with call reiterated. TP maintained at RM4.50 based on a blended FY19E PB/PE ratio of 0.7x/11.2x with 1SD below its 5-year mean to reflect normalization of credit costs and potential slower loans due to external conditions. Dividend yield is still attractive at 4.0% and coupled with potential upside of 16%; we reiterate OUTPERFORM.

Source: Kenanga Research - 23 Aug 2018