KUALA LUMPUR: UOB Kay Hian Malaysia Research is maintaining its Hold recommendation for AMMB Holdings Bhd with a target price of RM7.82.
It said on Wednesday the banking group is set to release its results for the first quarter ended June 30, 2014 (Q1, FY15) on Aug 22.
"Earnings should include an estimated RM548mil one-off gain on the disposal of its stakes in AmLife and AmTakaful to Metlife Inc.
"Excluding the one-off disposal gain, we are expecting a rather muted core 1QFY15 earnings growth of 0.8% on-year," it added.
UOB Kay Hian Research believes AMMB's earnings will be dragged down by: a) a sharp upward normalisation in provisions to 25-28bps vs 1QFY14 net write-back of 9bps as recoveries have tapered off, b) continued pressure on net interest margins (NIM) especially with AMMB's asset-liability mix (high fixed-rate loans and low current account and savings accounts (CASA) deposits) affected in a rising rate environment, and c) sluggish treasury market environment impacting its investment income.
It said AMMB's management has reaffirmed its loan growth target of 9.0% for FY15, a sharp recovery from FY14's 5.3% on-year.
The recovery comes on the back of expectations of stronger corporate loan growth, which was partially affected by certain lumpy corporate loan repayments in FY14.
"Although we have also penciled in a stronger 7.9% yoy loan growth in FY15 versus 5.3% in FY14, we believe AMMB's targeted 9% growth for FY15 remains overly optimistic as consumer loans, which represent 53% of the group's loan base, is likely to continue expanding at a rather muted 1%-2% in FY15," it said.
UOB Kay Hian Research said continued non-performing loans (NPL) headwinds within the automobile sector and slowing mortgage growth from the slew of property-cooling measures are likely to impact the group's overall consumer loan growth in FY15.
"Note that AMMB's consumer loan portfolio in FY14 expanded by a mere 1.1% as a result of a 1.5% contraction in automobile loans. Given rising concerns over asset quality of automobile loans, we opine management is likely to remain even more cautious on growth in its automobile loans in FY15," it pointed out.