AMMB reported a 3QFY19 net profit of RM349.9m (+59.8% YoY, +0.5% QoQ) for a cumulative 9MFY19 net profit of RM1.05bn (+19.0% YoY) which is still above our expectations at 85% of full-year estimates, though in line with consensus at 74%. Discrepancies are from stronger-than-expected recoveries which we had under estimated. We raise FY19 estimates by 11.9% to account for this, with FY20-21 estimates only up an average 3.2% as we expect normalization in credit costs going forward. Of encouragement is the consistency its operational numbers, underpinned by a broad-based expansion in its loans portfolio, with the Group’s liquidity position also sufficiently robust to withstand potential downturns. While our target price is adjusted higher to RM4.90 (RM4.50 previously) in line with the earnings lifts, we are maintaining our Trading Buy call as we remain cautious over growth momentum.
Income growth for 9MFY19 was an uninspiring +2.0% YoY, with investment banking income (-25.9% YoY) still a major drag amid volatile capital market conditions and cautious sentiment. Retail banking income (-0.7% YoY) was underpinned by higher net interest income (+4.5% YoY).
Loans growth (+6.0% YoY, +0.4% QoQ) is broad-based in line with management’s focus gaining some deeper penetration in the business banking segment, though also maintaining underwriting discipline by targeting better quality credits. Manufacturing (+15.0% YoY, +4.7% QoQ) and construction related loans (+13.4% YoY, +3.1% QoQ) are the noticeable upticks alongside mortgages (+17.0% YoY, +2.5% QoQ). Continued focus on the SME and medium-sized corporation segments should see momentum maintained.
Net interest margin (NIM) compressed another 3bps to 1.88% (2QFY19: 1.91%) with its portfolio rebalancing initiative remaining the biggest drag (- 5bps), tough partly mitigated by some deposit rate improvements (+2.4bps). While we are encouraged by the consistency starting to be seen in its operational numbers, we are nonetheless still wary over the highly-competitive space it is challenging in as part of its transformative process. More pronounced earnings growth may continue to come from cost reductions rather than significant margin enhancements, which may not necessarily be sustainable.
Asset quality remains steady, with credit costs excluding recoveries ranging between 50 and 60bps. While the current quarter has seen a greater quantum of loans classified as non-performing (Figure 2), recoveries have picked up as well (Figure 3), the latter providing a significant lift to 3QFY19 profitability in fact. Overall gross impaired loans ratio is a healthier 1.62% (2QFY19: 1.72%), with loan loss coverage at 116.8% (2QFY19: 111.3%).
Source: PublicInvest Research - 22 Feb 2019
https://klse.i3investor.com/blogs/PublicInvest/194544.jsp
