1HFY20 results came in line encouraged by strong fund and fee based income. Top-line continued to show resilience sequentially underpinned by resilient NOII with credit charge looking normalised and better than most of its peers. With undemanding valuation, and attractive dividend yield of 5.6%, we reiterate OUTPERFORM with an unchanged target price of RM4.75.

In line. 1HFY20 Core Net Profit (CNP) of RM711m came in line at 47%/49% of our/market full-year estimates. An interim DPS of 6.0 sen (+20%) was declared (in line).

Strong fee-based income. YoY, CNP improved 2% boosted by encouraging top-line (+7%) underpinned by NII and NOII growing at 9% and 7%, respectively. Fund-based income saw better growth (+5%) despite lower NIM (-8bps) as loans improved 2%, with better interest income from investment securities (+31% vs. income from loans at +1%). Growth in Investment in securities was also superior to loans (+19% vs. +2%). NOII improved on account of gain on sale/revaluation of financial investment/assets of RM151m. Loans were driven by residential properties (+9%) and SMEs (12%). Costs were well contained despite a 4% increase in opex (mostly from staff costs) as CIR fell 1ppt to 50%. Asset quality saw a slight uptick as GIL went up by 5bps with net credit charge up by 7bps to 0.12% (on account of RM45m writeback in 1Q) but within guidance estimation of 10-15bps. Although deterioration in retail went up by 17%, impairments from wholesale banking went down by 12%.

QoQ top-line traction remains, CNP of RM320m (-18%) was dragged by impairments (RM105m vs. 1QFY20: writebacks of RM45). Traction continued at top-line (+2% to RM1,077m) breaking the RM1b barrier since 4Q18. Fund-based income improved 1% as NIM improved 4bps (as deposits were re-priced along with easing of expensive deposits) underpinned by 1% advancement in loans (mitigated by 6% fall in investment securities). NOII rebounded (+1.2%) on account of better investment & trading income (+9% to RM94m) which was offset by fall in insurance income (-7%) to RM112m. Net Credit charge of 0.42% is attributed to higher credit charge (0.82%) which was offset by improved recoveries (48bps vs 1QFY20: 37bps).

FY20 target looks doable. Management guided for a revised ROE of 8-8.5% (in line with our initial estimate) with a loan target at the GDP level. Loan traction will be from incoming corporate pipeline supported by mortgages and SMEs. We believe AMBANK have reached a normalised level of credit charge: thus, management has guided for a full-year credit charge of 15-20bps (in line with our expectation of 15bps). NIM is expected to improve by 2-5bps due to the strong contribution from investment securities and the easing of expensive deposits.

Earnings upgraded. FY20E earnings raised slightly by 3% to RM1,551m on these assumptions; (i) NIM at +4bps (unchanged), ((ii) CIR of 50% (from 51% ), (iii) loans growth at +4.5% (unchanged), (iv) credit costs at 15bps (unchanged), and (v) tax rate of 21% (from 22%) as guided by management.

Maintain OUTPERFORM and TP. TP at RM4.75 is based on unchanged FY21E PBV of 0.77x (0.5SD below mean) to reflect the risk on slower loans but mitigated by operational efficiency, which would see benign credit charge (among its peers) and better NIM. On undemanding valuations with attractive dividend yield of 5.6% coupled with total potential upside of >+20%, we maintain our OUTPERFORM call.

Source: Kenanga Research - 2 Dec 2019