AMBANK’s 1H19 performance was commendable as loans momentum continued but was offset by weak fee-based income performance. Negligible credit cost 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.

Above expectations. 6M19 earnings of RM696m is above/in line with our/market expectations accounting for 58%/53% of respective estimates; the positive deviation stemmed from lower credit charge and higher-than-expected loans. A DPS of 5.0 sen was declared (in line).

Bottom-line underpinned by lower opex and credit charge. YoY, 6M19 earnings of RM695.7m improved by +5.5% YoY as credit charge continued to be negligible with lower opex. Top-line moderated (+1.8%) dragged by falling NOII (-2.5%) as both NII and Islamic banking income were in the positive territory despite their growth moderating to +3.8% and +4.7%, respectively. While loans improved +7.5% (vs. system loans/expectations of +5.7%/<6%) NII was dragged by falling NIM of 17bps (vs. our expectations of flattish NIM) due to repricing of deposits and deployment of long-term funding. Dragging NOII was weak capital market activities with investment & trading income falling 33.6% mitigated by net insurance income growth of +13.4%. Opex fell (-8.7%) due to lower wages incurred (benefiting from the MSS earlier this year) improving CIR by 6ppt to 51% (vs. guidance/expectations of <55% and industry’s 47%). YoY, asset quality improved as GIL fell by 16ppt to 1.72% with credit costs negligible at 5bps (vs. our expectations of 20- 25bps). QoQ, CNP of RM348.2m improved marginally by +0.2% as top- line improved marginally (+0.3%) as flattish NII was mitigated by improved NOII (+1.1%) due to improvement in investment & trading income to RM92.1m as net insurance income and fee & trading income fell (30.6% and 11.5%, respectively). Further improvement of asset quality was seen for the quarter as GIL fell by 5bps to 1.72% but credit charge was at 0.15% indicating normalization of credit costs ahead (as expected). NIM continued its compression for the quarter shedding another 5bps to 1.87% with loans for the quarter moderated to +1.6% which accounts for the flattish NII.

No change in our views of loans growth and flattish NIM. While loan traction moderated in 2Q, we maintain our view of loans growing ~6% for FY19E, underpinned by SMEs, Mid-Corp and supported by the credit card space. While concerns over the protracted trade war prevail, risks for the domestic SMEs might not be so prevalent, as Malaysia might be an intermediary to bypass the tariffs imposed. Management guided for flattish NIM ahead mitigated by lower funding costs (from higher intake of SMEs and Mid-Corp ahead) and higher yielding assets, especially from wholesale banking.

No change in earnings estimates. Although results are above expectations, our FY19E earnings are maintained at RM1.20b due to our view of normalized credit costs ahead.

TP maintained with OP 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 externalities. Dividend yield is still attractive at 3.8% and coupled with potential upside of >11%; we reiterate OUTPERFORM.

Source: Kenanga Research - 23 Nov 2018