KUALA LUMPUR: CGS-CIMB Equities Research is impressed by AMMB’s ability to outperform its peers in growing its net interest income in the final quarter ended March 31,2020 (FY2020).
“We see a relatively stronger growth in net interest income for AMMB in FY21F as a potential re-rating catalyst for our unchanged Add call on the stock, ” it said in a research note on Tuesday.
The research house retained its FY21-22F net profit forecasts and dividend discount model-based target price of RM3.60 for AMMB.
It also pointed out AMMB’s cost-cutting exercise has yielded positive results to reduce its FY20 overheads by 1.1%, and “we expect these to help to tame its overhead growth in FY21F”.
Downside risks would be a spike in loan loss provisioning and a drastic slowdown in loan growth
CGS-CIMB Research said AMMB’s FY3/20 core net profit was within expectations, accounting for 95% of our forecasts and 103% of Bloomberg consensus estimates.
However, FY20 dividend per share of 13.3 sen was below its projected 19 sen.
“FY20 core net profit advanced by 9.9%, underpinned by an 8.4% rise in total operating revenue. There was a one-off item of a RM285mil gain from the sale of retail NPLs in the FY3/19 reported net profit.
"As part of its practices under MFRS 9, AMMB provided a pre-emptive provision of RM167mil in 4QFY3/20 for the potential risks from the economic headwinds triggered by Covid-19 on its asset quality.
“Notwithstanding this, its 4QFY20 core net profit still increased by 41.7% yoy due to the strong growth of 41.9% yoy in pre-provisioning profit.
“Conversely, the additional provisioning caused its 4QFY20 net profit to dip 35.2% qoq, ” it said.
CGS-CIMB Research was encouraged that AMMB’s net interest income surged by 16.5% yoy in 4QFY20.
“This was the strongest among its peers and significantly above the sector’s growth rate of 0.5% yoy. This was mainly contributed by: 1) its 5.3% yoy loan growth at end-March 2020 (above the industry’s rate of 4%), and 2) a 17bp yoy expansion in 4QFY20 net interest margin to 1.95%, ” it said.
The research house said there was a marginal increase in gross impaired loan ratio AMMB’s gross impaired loan (GIL) ratio increased slightly from 1.71% as at end-Dec 19 to 1.73% as at end-March 2020.
Meanwhile, its loan loss coverage rose from 63.8% as at end-Dec 19 to 68.4% as at end-March 2020, lifted by the pre-emptive provisioning.
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