AMMB enjoys stable fundamentals

by **Cals** Tue 20 Aug 2013, 11:53

AMMB enjoys stable fundamentals
Business & Markets 2013
Written by Maybank IB Research
Tuesday, 20 August 2013 11:46

AMMB HOLDINGS BHD []
(Aug 19, RM7.85)
Maintain buy at RM7.96 with a target price of RM9.10: AMMB's net profit of RM468 million (+6% year-on-year) for the first quarter ending March 31 of 2014 financial year (1QFY14) was within expectations, coming in at 26% of our full-year and consensus' expectations.

Our forecasts are maintained as is our target price of RM9.10, pegged to 2014 calendar year price-to-book value (P/BV) of 1.9 times, supported by a return on equity (ROE) of 14.5%. AMMB continues to be: (i) a financial institution with sustainable ROEs; (ii) a beneficiary of the government's Economic Transformation Programme; (iii) a group whose fee income base is growing at a faster rate than that of its peers'; and (iv) the third most efficient bank in the industry measured in terms of cost/income ratios (CIR).

Loan growth of 7.5% year-on-year (y-o-y) lagged management's full-year target of 10% but a slow start to the quarter had already been anticipated. Corporate activity, however, continues to be subdued and our loan growth forecast for FY14 is trimmed to 8.1% from 9.7%.

Buffering this is an upward adjustment to fee income and general insurance income growth, which has been stronger than expected. Our net profit forecasts are broadly unchanged as a result.

Positives include the fact that net interest margin compression was fairly benign at just three basis points (bps) to 2.65% versus 2.68% for FY13.

Non-interest income expansion has also been strong and now accounts for 34% of total income versus 31% in 4QFY13. Current accounts and savings accounts (CASA) continue to rise and now make up 20.6% of total deposits versus 19.9% at end-March 2013. Asset quality was stable and the group saw net recoveries during the quarter. Management guides for credit costs of 20 bps to 30 bps for the rest of the year.

While there are integration costs of about RM45 million to be incurred this year, we do expect AMMB's CIR to continue trending down with synergies and full-year contributions from its subsidiaries, Kurnia Insurans (M) Bhd and MBF Cards (M) Sdn Bhd as well as IT savings from the group's infrastructure rollout.

Management has identified its potential partners for AMMB's life insurance business (recall that a stake of at least 30% is up for sale) and has applied to Bank Negara Malaysia to move forward to the negotiation stage. It will therefore take a couple of months to wrap up the sale. — Maybank IB Research, Aug 19

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This article first appeared in The Edge Financial Daily, on August 20, 2013.