AMMB’s 4QFY20 results were a slight miss, mainly as the group booked in pre-emptive loan provisioning of RM167m. On a more positive note, asset quality was under control, liquidity build-up was driven by CASA while guidance on Day One Modification losses seem much lower than initial estimates. We maintain our RM3.60 TP and OUTPERFORM call. Valuations appear undemanding while aggressive pre-emptive loan provisioning made could help keep further allowances ahead in check.

4QFY20 results a slight miss. 4QFY20 CNP of RM248m (+2% YoY, ex-gains from sale of retail NPLs of RM285m in 4QFY19/-35% QoQ) brought FY20 CNP to RM1.3b (+4% YoY, ex-NPL disposal gains). While the results were a slight miss with FY20 net profit making up 95- 96% of our/consensus estimates, this was commendable considering that AMMB made RM167m (63bps out of total 75bps) in pre-emptive provisions during the quarter. This was also one of the more aggressive pre-emptive provisioning that was made among the banks during 1QCY20. MTM losses from treasury due to bond market sell-off in March also contributed to the shortfall.

Results’ review. Lower non-interest income (NoII) and higher credit cost were the main line items that dragged 4QFY20 results, as highlighted above. In mitigation, opex was well controlled while AMMB enjoyed a low effective tax rate of just 7% following the reversal of tax overprovision from prior years now that AMMB has settled its tax matters with the IRB up to FY19. Loan growth was a decent 5% YoY (+3% QoQ), led by the corporate segment while deposits rose 6%/7% YoY/QoQ as AMMB looked to build up liquidity. More impressive was CASA growth (+16% YoY and QoQ), which was driven by the wholesale segment and AMMB attributed this to the fruits of its cash management system. Gross impaired loans (GIL) ratio was broadly stable QoQ at 1.7%, while LLC ticked up to 68% (3QFY20: 64%) following the pre-emptive provisioning. On the whole, FY20 ROE of 7.4% missed the 8-8.5% guidance.

Dividend. AMMB declared a final cash DPS of 7.3 sen. While this was below our expected 15.0 sen (4QFY19: 15.0 sen), nevertheless, this was a positive surprise considering ABMB (MP; TP: RM2.20) did not declare any DPS in its 4QFY20 results last week. FY20 DPS of 13.3 sen (FY19: 20 sen) translates to a payout of 30% (FY19: 40%).

Conference call’s highlights. Visibility remains poor at this stage, and thus, guidance for FY21 was scant. Broadly, AMMB expects a U shaped economic recovery and thus, sees room for another 50bps OPR cut. NIM was guided at 1.8%, and likely to range between 1.75%- 1.80% should there be another 50bps OPR cut in 2HCY20. In terms of asset quality, AMMB expects GILs to pick up post the end of the loan moratorium period and internal stress testing of the portfolio points to the requirement of RM300m-500m in provisions (c. 28-47bps credit cost), of which, RM167m was taken up in 4QFY20. Finally, management guided for Day One Modification losses (net) of RM80m at the income level, after taking into account benefits from concessionary rate funding.

Earnings. We updated our FY21E numbers for the FY20 results, but the impact is not too significant. FY21E DPS, however, is revised down by a more significant 32% to 11.5 sen as we updated our payout assumption to 30% (43% previously). We project a 14% YoY drop in FY21E net profit mainly on credit cost rising further to 45bps (FY20: 28bps). We also introduce our FY22E net profit of RM1.298b (+12% YoY) in this report.

Maintain OUTPERFORM and TP of RM3.60, which is based on a GGM-derived CY21E PB of 0.55x. Even after we assumed AMMB takes a hit of c. RM1b in loan impairments over FY21-22, AMMB still trades at CY20E/21E PE and PB of 7.7x/7.3x and 0.48x/0.46x respectively, which we think are undemanding.

Source: Kenanga Research - 30 Jun 2020