KUALA LUMPUR: AMMB’s core net profit for the financial year ended March 31, 2018 was below CIMB Equities Research’s expectations, accounting for 94% of its forecast due to lower-than-expected topline growth.
“However, the FY18 net profit was largely in line with market expectations at 96% of Bloomberg consensus’ estimates,” it said on Friday.
The research house said the full-year net dividend per share of 15 sen was also below its projected 18 sen.
Commenting on the financial results, CIMB Research said AMMB booked in one-off mutual separation scheme (MSS) costs of RM146mil in the fourth quarter. This contributed to the 24.5% on-year drop in its reported net profit for that quarter.
Excluding the MSS costs, core net profit for 4QFY18 would have increased by 8.5% on-year, mainly driven by a strong 17% on-year increase in Islamic banking income and a net write-back of RM29mil in loan loss provisioning.
The reported FY18 net profit fell by 14.5%, partly due to the one-off MSS costs. Excluding the MSS cost, FY18 core net profit would have also declined, but by narrower margin of 6.2%.
This was mainly due to the lower net write-back of RM1.1mil in loan loss provisioning in FY18 vs. RM173.5mil in FY17.
“Loan growth picked up from 4.4% on-year at end-December 2017 to 5.9% on-year at end-March 2018, topping the 4.4% rate for the industry,” it said.
CIMB Research noted the growth was mainly driven by an expansion of 22.2% on-year in residential mortgages and 11.8% on-year in general commerce loans.
However, auto loans declined for the 15th consecutive quarter, down by 7.6% on-year at end-March 2018. This was due to the group’s plan to reduce its exposure to the auto loan segment.
The gross impaired loan ratio improved from 1.77% at end-Dec 17 to 1.7% at end-March 2018 but the loan loss coverage fell from 59.7% to 57.6% over the same period.
“We lower our FY19-20F EPS forecasts by circa 7.8% as we cut our projected net interest income by 8% in view of the slower-than-expected growth in FY18.
“For our dividend discount model (DDM) valuation, we reduce the beta from 1.15 to 1.05. As such, our DDM-based target price remains unchanged at RM3.50.
“Despite the above-industry loan growth, we retain our Hold call on AMMB due to the expected upturn in credit cost cycle starting from FY19F. The upside/downside risks to our call are a pick-up/slowdown in loan and fee income growth. We prefer RHB Bank for exposure to the Malaysian banking sector,” it said.
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