INVESTMENT HIGHLIGHTS

• Selling its NPLs for RM553.91m

• NPLs fully written off

• Positive impact to earnings but subject to adjustments

• No change to forecast

• Maintain NEUTRAL with adjusted TP to RM4.50 (from RM4.10) as we remove the discount to our valuation following the Group’s inclusion in the FBMKLCI

Proposal to sell NPLs. The Group announced yesterday that its wholly owned subsidiaries, AmBank (M) Berhad and AmBank Islamic Berhad are proposing to dispose of their respective non-performing loans/financing to Aiqon Amanah and Aiqon Islamic respectively. The Portfolio consists of 537,068 individual and corporate accounts.

Purchase Price subject to adjustments. The Headline Purchase Price for the NPL portfolios amounted to RM553.91m (RM428.11m for AmBank portfolio and RM125.8m for AmBank Islamic portfolio). It is worth noting that the agreed Headline Purchase Price will be subject to adjustments such as deduction of Net Interim Recovery, low balance, mutually agreed, fully settled and where hire purchase vehicles are repossessed.

Positive impact to earnings but yet to be quantified. We expect the proposal sale will have a positive impact to earnings. However, it could not be quantified as yet given that the Headline Purchase Price is subject to adjustments. Nevertheless, based on our initial estimation, we believe that the sale could add between 14% and 20% from our current FY19 earnings forecast. Also, this could potentially add another 5sen to 10sen to our normalised target price. In terms of asset quality ratio, it will not have any impact given that the portfolio has been fully written off.

Group could concentrate on growing the “right” loans portfolio. We believe that the sale will be positive for the Group, not just in terms of one-off earnings gains but also from an operational stand-point. This could allow for the Group to further focus on growing its loans book in its targeted areas. These are namely mortgage, SMEs and card receivables which as at 2QFY19 expanded by +20.8%yoy to RM29.1b, +19.9%yoy to RM18.1b and +22.0%yoy to RM2.2b respectively.

No change to forecast. As the Headline Purchase Price is still subject to change, we are maintaining our FY19 and FY20 forecast.

Source: MIDF Research - 4 Jan 2019