CIMB Research retains Add for AMMB

For the nine months ended Dec 31, 2013, its earnings rose 9% to RM1.329bil from RM1.219bil in the previous corresponding period. Its revenue rose 13.4% to RM7.215bil from RM6.358bil.

KUALA LUMPUR: CIMB Equities Research has retained its Add recommendation for AMMB Holdings Bhd based on an expected recovery in FY17F EPS growth, the pick-up in loan growth.

The research house said on Monday AMMB is also trading at an attractive valuation with CY17 P/E of 9.8 times and P/BV of 0.8 times versus 11.9 times and 1.3 times respectively for the industry. Downside risks to its target price include a spike in credit costs and decline in revenue.

“At 73.5% of our full-year forecast, AMMB’s 9MFY3/17 net profit was within our expectations. But the results were above market expectations at 76.5% of Bloomberg consensus estimate.

“We retain our FY17-19F EPS forecasts and DDM-based target price of RM5,” it said.

CIMB Research said AMMB enjoyed a net write-back of RM151.5mil in the 9MFY17, in line with the improvement in its asset quality. 

However, the total operating revenue fell by 2.5% on-year in 9MFY17, stemming from the 7.2% on-year decline in net interest income, in line with the 5.4% on-year drop in income earning assets. This was the key reason for the 3.3% on-year drop in 9MFY17 net profit.

“We were impressed by the strong rebound in on-quarter loan growth to 3.9% on-year at end-Dec 16, the fastest quarterly expansion in the past seven to eight years. This pushed up the on-year growth from 0.5% at end-Sep 16 to 4.4% at end-Dec 16, albeit still below the industry’s pace of 5.3%. 

“The key driver was the 21.6% on-year jump in residential mortgages, more than doubling the growth of 9.2% for this segment in the industry. However, auto loans contracted for 13 consecutive quarters, down by 7.9% on-year at end-Dec 16.

“Gross impaired loan ratio improved from 1.64% at end-Sep 16 to 1.54% at end-Dec 16, below the industry’s 1.61%. Meanwhile, the loan loss coverage increased slightly from 83.5% at end-Sep 16 to 84.1% at end-Dec 16.

“The management stated that the investment income would improve in 4QFY17 (vs. 3QFY17) given the favourable yield-curve movement. Also, the strong pick-up in loan growth and expected stable margins would translate into better growth in net interest income. 

“We think that these would be more than offset an upturn in credit costs, underpinning our expectation for a 13.7% on-quarter increase in 4QFY17 net profit,” it said.