UOBKay Hian ups AMMB’s target price to RM4.05

PETALING JAYA: AMMB Holdings Bhd’s (AMMB) provision write-backs cushioned the second quarter of financial year 2017 (2QFY17) and is likely to extend into the second half of financial year 2017 (2HFY17), said UOBKayHian Malaysia Research on Tuesday.

AMMB’s 2QFY17 net profit of RM352mil rose 8.9% quarter-on-quarter, due to lumpy write-back in provisions. Moving into 2HFY17, the management expects recoveries from legacy consumer books to continue filtering through, but partially offset by a rise in asset quality stresses within the real estate and oil and gas sectors.

The research house highlighted that AMMB’s revenue grew modestly by 1.3% on-year. The weak revenue trends were attributed to annualised contraction of 1.3% in loan base, 18 basis points compression in net interest margin (NIM) and 5.8% contraction in fee income.

UOBKayHian upgraded its recommendation on AMMB to “hold”, with a higher target price of RM4.05.

Hong Leong Investment Bank (HLIB) said that only profit after tax and minority interest (PATAMI) and net interest margin (NIM) came in below the management’s guidance, while other targets were within management guidance as at 1HFY17.

Year to date, while mortgage loan continued to thrive,1HFY17 loan base fell 0.7% to RM87.3bil on the back of weak corporate banking and auto finance. Mortgage loan grew 2%, offsetting other weaknesses across the board.

AMMB’s asset quality improved on year to date basis, with gross imapired loan (GIL) ratio
improving to 1.64% and loan loss coverage increasing marginally to 83.5%.

“We reckoned that AMMB’s transformation initiatives starting to show fruitful results on topline and bottomline numbers, especially on its cost savings that booked RM62mil so far.

“However, the management guided for further weakness in credit cost as there are several corporate loans it continued to monitor while exposure on oil and gas remains limited,” said HLIB.

The research house maintained its “hold” call, with an unchanged target price of RM4.42.