MIDF Research in a report that despite operating expenditure increasing from the MSS, there would be savings later.
“We could expect a further increase in personnel cost from its MSS program, where a total of 1,123 applications were approved, representing 12% of the group’s permanent workforce.
“The payout for the MSS is estimated at RM128mil which will be accounted for in the fourth quarter of financial year 2018 Q4FY18.
“However, we understand that the savings is expected to be RM80mil per year,” it said.
The country’s sixth largest banking group by assets will realise these cost savings from FY19, translating to a payback period of one and a half years, according to CIMB Research.
On Wednesday, the banking group announced that net profit of RM878.7mil for the nine months of FY18 declined by 11.1% year-on-year due to provisions.
The variance was due to provisions in Q3FY18 instead of previous trend of write backs, which brought net profit for the quarter down 30% yoy.
Separately on the same day, the bank announced the completion of the MSS exercise that was made available to all eligible permanent employees.
It said the exercise, which was launched early this year, was voluntary in nature and introduced as part of its Top Four Strategy to enhance efficiency and productivity.
Employees whose applications were accepted will be released in batches between January and June 2018 to ensure a smooth transition process.
Despite the lower-than-expected Q3FY18 results, CIMB Research has maintained an “add” call to the stock, given the attractive valuations of FY19 price earnings of 8.6 times and price t0 book value (P/BV) of 0.7 times.
The research firm has, however, lowered the stock’s target price from RM5.58 to RM5, following a cut in FY18 to FY20 forecast earnings per share by 9% to11%.
MIDF Research feels encouraged by the pockets of improvement in the bank’s 9MFY18 result.
“We like the fact that net interest income grew robustly and net interest margin (NIM) expanded decently.
“However, we believe that the growth in the fixed deposit are hindering a better NIM improvement.
“We also like the fact that credit cost is normalising despite its impact to earnings.”
But it said these encouraging signs were not compelling enough at this point and maintains a neutral recommendation with adjusted target price to RM4.30 from RM4,40 before.
Shares of AMMB closed 4 sen lower to RM4.10 at mid-day.
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