AMBANK (1015) : AMMB Holdings - Not in the mood to lend
Target RM6.70 (Stock Rating: HOLD)
Excluding one-off divestment gains, AMMB’s annualised 1HFY3/15 net profit was 9.6% below our FY14 forecast, though it was in line with consensus (2.4% short). This was because we were over-optimistic on our forecasts for revenue and loan loss provisioning (LLP). The 12 sen net interim DPS was also below expectations. We are raising the projected LLP by 40-100% and trimming the assumed lending yield by 5bp. This brings down our EPS forecasts and DDM-based target price (COE of 10%; LT growth of 4%) despite the roll-over of valuation to end-15. Notwithstanding the below-sector valuations, AMMB remains a Hold in view of the concerns over (1) weak loan growth, (2) margin contractions, and (3) a rise in credit costs. We prefer Maybank.
Boosted by divestment gains
The group achieved a net profit growth of 9% yoy in 1HFY15, lifted by the one-off gains of about RM208m from the sale of its stake in its life insurance unit. Excluding this, its core net profit would have declined by 14.2% yoy in 1HFY15. This was primarily dampened by a (1) 9.7% yoy drop in net interest income on the back of weak loan growth and a 22bp yoy contraction in net interest margin to 1.74% in 1HFY15, and (2) credit cost of RM85.8m in 1HFY15 vs. a net write-back of RM31m a year ago.
Pedestrian loan growth but…
Loan growth eased further from an already-weak 1.5% yoy in Jun 14 to 0.9% yoy in Sep 14 (vs. the industry’s 9%). This was primarily dragged down by (1) a slower 10.1% yoy expansion in residential mortgages, (2) a slight 0.6% yoy drop in manufacturing loans, and (3) a wider decline of 11.7% in auto loans.
…better asset quality
AMMB did a good job in managing its asset quality as its gross impaired loan ratio fell from 1.87% in Jun 14 to 1.79% in Sep 14. Although loan loss coverage slid from 120.5% in Jun 14, it remained comfortable at 117.6% in Sep 14.
Below-sector valuation a reflection of negative outlook
Despite the below-sector valuation, investors are advised to continue to stay on the sidelines as the lethargic loan growth and margin contraction do not bode well for revenue and earnings growth in the coming quarters.
Source: CIMB Daybreak - 20 November 2014
Target RM6.70 (Stock Rating: HOLD)
Excluding one-off divestment gains, AMMB’s annualised 1HFY3/15 net profit was 9.6% below our FY14 forecast, though it was in line with consensus (2.4% short). This was because we were over-optimistic on our forecasts for revenue and loan loss provisioning (LLP). The 12 sen net interim DPS was also below expectations. We are raising the projected LLP by 40-100% and trimming the assumed lending yield by 5bp. This brings down our EPS forecasts and DDM-based target price (COE of 10%; LT growth of 4%) despite the roll-over of valuation to end-15. Notwithstanding the below-sector valuations, AMMB remains a Hold in view of the concerns over (1) weak loan growth, (2) margin contractions, and (3) a rise in credit costs. We prefer Maybank.
Boosted by divestment gains
The group achieved a net profit growth of 9% yoy in 1HFY15, lifted by the one-off gains of about RM208m from the sale of its stake in its life insurance unit. Excluding this, its core net profit would have declined by 14.2% yoy in 1HFY15. This was primarily dampened by a (1) 9.7% yoy drop in net interest income on the back of weak loan growth and a 22bp yoy contraction in net interest margin to 1.74% in 1HFY15, and (2) credit cost of RM85.8m in 1HFY15 vs. a net write-back of RM31m a year ago.
Pedestrian loan growth but…
Loan growth eased further from an already-weak 1.5% yoy in Jun 14 to 0.9% yoy in Sep 14 (vs. the industry’s 9%). This was primarily dragged down by (1) a slower 10.1% yoy expansion in residential mortgages, (2) a slight 0.6% yoy drop in manufacturing loans, and (3) a wider decline of 11.7% in auto loans.
…better asset quality
AMMB did a good job in managing its asset quality as its gross impaired loan ratio fell from 1.87% in Jun 14 to 1.79% in Sep 14. Although loan loss coverage slid from 120.5% in Jun 14, it remained comfortable at 117.6% in Sep 14.
Below-sector valuation a reflection of negative outlook
Despite the below-sector valuation, investors are advised to continue to stay on the sidelines as the lethargic loan growth and margin contraction do not bode well for revenue and earnings growth in the coming quarters.
Source: CIMB Daybreak - 20 November 2014
