AMBANK has proposed to dispose RM553m worth of NPLs to a SPV. We are positive on the proposed monetisation as it will likely support AMBANK’s funding needs in the long run. Maintain Market Perform with a TP of RM4.50

Disposing RM554m of NPLs. AMMB Holdings (AMBANK) yesterday announced that its wholly-owned subsidiaries AmBank (M) Berhad (AmBank) and AmBank Islamic Berhad (AmIslamic) are proposing to dispose of their respective non-performing loans/financing (NPLs) to Aiqon Amanah Sdn Bhd and Aiqon Islamic Sdn Bhd (collectively known as Aiqon SPVs).

NPLs from AmBank and AmIslamic. The proposed disposal involves an outright sale of the portfolio on a non-recourse basis amounting to an aggregate of RM553.9m; RM428.1m in respect of the Ambank portfolio and RM125.8m in respect of the AmIslamic portfolio. In a filling with Bursa Malaysia, AMBANK stated that both portfolios collectively consist of 0.53m accounts from both individual and corporate customers and the types of products includes loans/financing to SMEs, HP, mortgages, personal and credit cards and are fully written off in the books of AmBank and AmIslamic. The purchase price by Aiqon was arrived on a willing buyer-willing seller basis (based on the portfolio cutoff date of 28 Feb 18) and falls within the valuation range of RM450- 500m.

Proceeds to be used as working capital. The rational of the proposed disposal is to strengthen its loans/financing management and monetise the portfolio. The proceeds from the disposal will be utilised by AmBank and AmIslamic for their respective working capital purposes within a year of the expected completion date of 31 March 2019.

Positive in the long run. We are positive on the disposal. By converting these NPLs into cash the disposal is likely to enhance AMBANK CET1 and its CAR ratios by 46bps and 49bps, respectively (2Q19: CET1 and CAR at 11.8% and 16.6% respectively) assuming the final sale is valued at RM500m and the proceeds are not fully utilised. If the proceeds are fully utilised, its CAR ratio is likely to drop by 8bps. The utilisation is also likely to support AMBANK’s funding needs, lowering funding costs and mitigating downside pressure on NIM ahead.

No change in earnings estimates. As the disposal is still at the proposal stage, we make no changes to our FY19E/FY20E earnings of RM1.20b/RM1.27b. TP (at RM4.50) and MARKET PERFORM call maintained.

Source: Kenanga Research - 4 Jan 2019