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Tuesday, August 23, 2016

AMMB remains an Add in CIMB Research’s book

Tuesday, 23 August 2016 | MYT 8:32 AM
AMMB remains an Add in CIMB Research’s book

KUALA LUMPUR: CIMB Equities Research is retaining an Add for AMMB Holdings Bhd based on its expected recovery in its earnings growth, attractive valuations and dividend yields.

It said on Tuesday after two consecutive quarters of earnings decline, the net profit rebounded by 15.4% on-quarter in 1QFY17 ended June 30, 2016.

“The downside risks to our target price include spike up in credit costs and decline in revenue,” it said, as it lowered the target price from RM5 to RM4.90. The last traded price was RM4.40.

CIMB Research said AMMB’s valuations were attractive as the FY18 price-to-earnings (P/E) was 9.2 times and price-to-book value was 0.8 times while the dividend yields were expected to be 4% to 5% in FY17 to 19.

It said although AMMB’s 1QFY3/17 net profit only accounted for 23.4% of its forecast for the financial year ending March 30, 2017 (FY17), the results were in line, in anticipation of stronger earnings in the coming quarters arising from quarter-on-quarter topline expansion.

The 1QFY17 net profit was above market expectations at 25.8% of Bloomberg consensus estimates.

“Although 1QFY17 financial performance was worse than a year ago, we are encouraged by the bank showing on-quarter improvement in net profit. Net profit advanced by 15.4% on-year in 1QFY17 on the back of 2bp on-quarter expansion in net interest margin (although down by 18bp on-year).

“This enabled the group to register a 1.2% on-quarter increase in 1QFY17 net interest income, compared to a slide of 1.8% on-quarter in 4QFY16. Also, non-interest income rose by a promising 10.7% on-quarter in 1QFY17,” it said.

CIMB Research was encouraged by the improving trend in loan growth from a mere 0.1% on-year in March 2016 to 1.6% on-year in June 2016, the strongest level since March 2014. The key driver was the 18.1% on-year jump in residential mortgages, which offset the auto loan decline of 6.4% on-year in June 2016.

Business loan momentum was weak in June 2016, rising by only 1%-2% on-year for manufacturing and general commerce loans. Following the increase in 4QFY16, gross impaired loan (GIL) ratio slid from 1.94% in March 2016 to 1.69% in June 2016.

“We lower our FY17-19 EPS forecasts by 2.4-2.6% as we: (1) factor in the rate cuts by the bank (20bp cut in base rate and fixed deposit rates), and (2) trim our FY17 loan growth forecast by 1% pt to 6.1%. This leads to a drop in our DDM-based target price from RM5.00 to RM4.90 (based on unchanged cost of equity of 10% and interim growth rate of 3%),” it said.

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