AMBANK (1015) - AMMB Holdings - A topline dampener, again
Target RM6.60 (Stock Rating: Hold)
Adjusting for the one-off divestment gains, AMMB’s annualised core 9MFY3/15 net profit was largely in line with our projection at 72% of our full-year forecast, but ahead of consensus (78%). As expected, no dividend was declared in 3QFY15. The 1%-pt cut in FY15 loan growth to 5.5% nudges down our EPS forecast and DDM-based target price (COE of 10%; LT growth of 4%). Notwithstanding the below-sector valuation, 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 RHB Capital.
Decline in operating revenue
We take a negative view of the fact that the group recorded a 5.5% drop in 9MFY15 operating revenue, mainly due to the 11.4% yoy decline in net interest income. There was a double whammy for net interest income – an anaemic loan growth and a 23bp yoy slide in net interest margin to 1.72% in 9MFY15. However, AMMB still managed to register a net profit growth of 6.1% in 9MFY15 due to (1) one-off divestment gains of RM208m from the sale of the stakes in life insurance units, (2) lower overheads, and (3) net write-back in loan loss provisioning in 3QFY15.
Anaemic loan growth
Loan growth eased further from an already-weak 0.9% yoy in Sep 14 to 0.7% yoy in Dec 14 (vs. the industry’s 8.7%). This was primarily dragged down by (1) a slower 4.9% yoy expansion in residential mortgages, and (2) a 16.2% yoy drop in general commerce loans. These were partly offset by the improving momentum for auto and manufacturing loans.
Higher impaired loan
AMMB’s gross impaired loan ratio deteriorated from 1.79% in Sep 14 to 1.89% in Dec 14 while loan loss coverage fell from 117.6% to 106%. This was mainly due to the impairment of one well-secured corporate loan.
Concerns over topline growth
The lower operating revenue in 9MFY15 underscores our concerns over its topline growth. For this reason and an expected rise in credit cost, investors are advised to stay on the sidelines despites AMMB’s undemanding valuation.
Source: CIMB Daybreak - 12 February 2015
Target RM6.60 (Stock Rating: Hold)
Adjusting for the one-off divestment gains, AMMB’s annualised core 9MFY3/15 net profit was largely in line with our projection at 72% of our full-year forecast, but ahead of consensus (78%). As expected, no dividend was declared in 3QFY15. The 1%-pt cut in FY15 loan growth to 5.5% nudges down our EPS forecast and DDM-based target price (COE of 10%; LT growth of 4%). Notwithstanding the below-sector valuation, 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 RHB Capital.
Decline in operating revenue
We take a negative view of the fact that the group recorded a 5.5% drop in 9MFY15 operating revenue, mainly due to the 11.4% yoy decline in net interest income. There was a double whammy for net interest income – an anaemic loan growth and a 23bp yoy slide in net interest margin to 1.72% in 9MFY15. However, AMMB still managed to register a net profit growth of 6.1% in 9MFY15 due to (1) one-off divestment gains of RM208m from the sale of the stakes in life insurance units, (2) lower overheads, and (3) net write-back in loan loss provisioning in 3QFY15.
Anaemic loan growth
Loan growth eased further from an already-weak 0.9% yoy in Sep 14 to 0.7% yoy in Dec 14 (vs. the industry’s 8.7%). This was primarily dragged down by (1) a slower 4.9% yoy expansion in residential mortgages, and (2) a 16.2% yoy drop in general commerce loans. These were partly offset by the improving momentum for auto and manufacturing loans.
Higher impaired loan
AMMB’s gross impaired loan ratio deteriorated from 1.79% in Sep 14 to 1.89% in Dec 14 while loan loss coverage fell from 117.6% to 106%. This was mainly due to the impairment of one well-secured corporate loan.
Concerns over topline growth
The lower operating revenue in 9MFY15 underscores our concerns over its topline growth. For this reason and an expected rise in credit cost, investors are advised to stay on the sidelines despites AMMB’s undemanding valuation.
Source: CIMB Daybreak - 12 February 2015
