AMMB Holdings - A Spike in LLP Cushioned by Tax Credit

Date: 
2024-02-27
Firm: 
CIMB
Stock: 
Price Target: 
4.86
Price Call: 
BUY
Last Price: 
4.24
Upside/Downside: 
+0.62 (14.62%)
  • AMMB’s 9MFY3/24 net profit was below our expectations (at 67% of our full- year forecast) due to higher-than-expected loan loss provisioning (LLP).
  • Without a tax credit, AMMB’s 4QFY24F net profit would drop by 19.5% qoq, in our view, even though we also expect its 4QFY24F LLP to decline qoq.
  • Reiterate Add given AMMB’s attractive valuation (CY24F P/E of 7.7x vs. the sector’s 10.3x) and potential write-back in management overlay.

9MFY3/24 net profit below our expectations

AMMB Holdings’s 9MFY3/24 net profit was below our expectations at 67% of our full-year forecast due to higher-than-expected LLP and impairment loss of RM112m for non- financial asset. However, the 9MFY3/24 result was above street estimates at 84% of the Bloomberg consensus estimate. 9MFY24 net profit rose by 8.6% yoy, lifted by a RM291.3m write-back in taxation in 9MFY24 (vs. tax expense of RM387.3m in 9MFY23).

Tax credit more than offsets higher provision and impairment loss

As expected, AMMB booked in a tax credit of RM538m in 3QFY24, which was factored in our earnings forecasts in our report dated 8 Jan 2024. This enabled AMMB to achieve a strong net profit growth of 22.3% yoy in 3QFY24. Excluding the impact of tax credit, AMMB’s pre-tax profit (PTP) was RM3.8m in 3QFY24 (-99.3% yoy). The drag was mainly from the 113.8% yoy surge in LLP (lifted by the bank’s prudential move to provide a credit impairment overlay of RM328m) and a RM112m impairment loss for non-financial asset.

Projecting a 19.5% qoq drop in 4QFY24F net profit

Without the tax credit, we expect AMMB’s net profit to decline by 19.5% qoq in 4QFY24F, although we think that the LLP would also fall qoq in 4QFY24. Based on this, we expect 4QFY24F net profit to rise by 2.2% yoy, mainly supported by our expectations of yoy growth in net interest income.

Cutting FY24F net profit forecast

We cut our FY24F net profit forecast by 11.4% as we raise our projected FY24F LLP by 24.8% and factor in the impairment loss of RM112m for non-financial asset (incurred in 3QFY24). However, our DDM-based target price (TP) is unchanged at RM4.86 (cost of equity of 9.9%; long-term growth rate of 4%) as it is derived from discounting the dividends from multiple years while we only reduce our net profit forecast (and dividend payment) for FY24F.

Reiterate Add on AMMB

We retain our Add rating on AMMB given its attractive valuation of 7.7x CY24F P/E, which is below the sector’s average of 10.3x. Potential re-rating catalysts include our expected pick-up in loan growth in FY3/25F and potential partial write-back of management overlay (which stood at RM569m at end-Dec 23). Potential downside risks include material deterioration in loan growth and asset quality.

Source: CGS-CIMB Research - 27 Feb 2024

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