CIMB Research positive on AMMB sale of very old NPLs

CIMB Research said AMMB would start to realise cost savings of RM80mil per annum from its mutual separation scheme from FY19F onwards.

KUALA LUMPUR: CIMB Equities Research is positive on AMMB Holdings Bhd’s  proposed sale of its non-performing loans (NPLs) as the move would enable it to rechannel some of its resources to focus on growing new businesses.

It said on Tuesday AMMB hosted a conference call for its proposed NPL sale which it viewed as positive for the banking group.

On Jan 3, AMMB announced AmBank and AmBank Islamic proposed to dispose of their portfolios of NPLs comprising 537,068 accounts to Aiqon Amanah and Aiqon Islamic for an aggregate selling price of RM553.9mil.

“During the conference call, AMMB stated that most of the NPLs to be sold are very old – 50% of these defaulted for 10 years to 20 years and 12% defaulted for more than 20 years,” it said.

CIMB Research said AMMB expected the transaction would be accretive to its earnings and capital ratios but at this juncture, it was not able to quantify the potential impact.

It estimated that AMMB’s FY19F net profit could increase 0.3% for each RM5.54mil gained from the proposed NPL sale, i.e. for every 1% of the quoted selling price of RM553.9mil. 

The maximum uplift for its FY19F net profit would be 30.7%, assuming the gain equates the quoted selling price. 

“However, the bank stated that the selling price would be revised downward upon the completion of the deal. Notwithstanding the potential one-off gain from the proposed NPL disposal, we retain our Hold call on AMMB given the concerns over an expected upturn in its credit cost cycle in FY3/19F. 

“The upside/downside risks to our call are improvement/deterioration in its loan growth and asset quality. 

“Also intact are our FY19-21 EPS forecasts and DDM-based target price of RM4.39. We prefer RHB Bank for exposure to Malaysian banks,” it said.