CIMB Research retains Hold for AMMB, TP RM4.39

KUALA LUMPUR: CIMB Equities Research is maintaining its FY19-21F EPS forecasts and dividend discount model-based target price of RM4.39 for AMMB Holdings Bhd.

It said on Friday it also retained its Hold call on AMMB as it was concerned about the expected upturn in credit-cost cycle, starting from 4QFY19F. 

“However, we think that the share price could be supported by its attractive dividend yield of 4.1% projected for FY19F. We prefer RHB Bank for exposure to Malaysian banks,” it said.

AMMB’s 9MFY3/19 net profit was within expectations at 76% of CIMB Research’s full-year forecast and 74% of Bloomberg consensus estimates. 

“We expect 4QFY19 net profit to be lower (compared to 3QFY19) as we think that the net write-back of loan loss provisioning (LLP) in 3QFY19 will not be sustainable,” it said.

The bank’s net profit surged by 19% on-year in 9MFY3/19, mainly spurred by (1) 9.5% on-year drop in overheads, aided by the cost savings from the mutual separation scheme, and (2) a RM29.7mil net write-back in LLP in 9MFY19 compared to a provision of RM28mil in 9MFY18.

“However, we were disappointed by the weak revenue growth of 1.2% on-year in 9MFY19. This was mainly caused by the 5.2% on-year decline in non-interest income with an across-the-board decline – down by 5.1% on-year for fee income, 35.4% on-year for investment income and 89.2% on-year for foreign exchange profit,” it said.

CIMB Research pointed out loan growth moderated from 7.5% on-year at end-September 2018 to 6% on-year at end-December 2018, but this was still slightly above the industry’s 5.6%. 

The slowdown mainly came from the residential mortgage segment, with growth declining from 20.7% on-year at end-September 2018 to 17% on-year at end-December 2018 (vs. the industry’s 7.6%). 

Auto loan continued to contract (by 14.3% on-year at end-December 2018) due to the bank’s deliberate move to reduce exposure to this loan segment.

Gross impaired loan ratio fell from 1.72% at end-September 2018 to 1.62% at end-December 2018while the loan loss coverage increased from 79.7% to 82.5% over the same period, it said.