AMMB Holdings - Within expectations

Period   1Q13

Actual vs.  Expectations                

The 1QFY13 PAT of RM448.6m was within the consensus’ forecast (27%) and that of ours (26%). 

Dividends  No dividend was declared.

Key Result Highlights

The 1Q13 net interest income grew +2.1% QoQ and +1.4% YoY to RM515.4m. QoQ, the net interest margin was squeezed by 2bps to 2.71% while there was just a moderate 3.3% loan growth in 1Q13. We note that the non-interest income was strong despite the slow quarter. The non-interest income of RM549.9m (+6.1% QoQ) contributed 52% of the total income.  

The group has maintained its focus on growing its targeted segments and has made steady progress in rebalancing its loans and deposits portfolio with loans growing by 6.5% YoY to RM78.6b. The fastest growing segments were still Business loans (+18.2% YoY) and Corporate loans (+7.0% YoY). Consumer loans grew only +4.7% YoY due to the Responsible Finance guideline. Deposits, meanwhile, grew 5.1% YoY. The total deposits of RM87.9b consisted of 16.3% CASA. The stronger loan growth in 1Q13 led to a 180bps increase in the LDR to 88.8% vs. 87.0% in 1Q12.

Post-full adoption of MFRS, gross impaired loans held at RM1.9b with the gross impaired ratio improving to 2.38% (from 2.45% in FY12). Loan loss coverage meanwhile hit a high at 116.3%. The group reported loan loss charges of RM5.2m or a credit charge at 8bps.

Operating expenses were well-managed with the costto-income ratio at 41% in 1Q13. In summary, the achieved 16.1% ROE (annualised) was in line with management’s guidance.

Outlook  The group is maintaining its medium-term aspiration (FY13-15) to grow its PAT growth by 9%-12% (CAGR) range  with  loan  growth  target  of  8%-9%  as  well  as  a ROE target range of 14%-15%. 

We believe these targets are reasonable and achievable supported by a projected dividend payout ratio in the range of 40%-50%. We believe its strong balance sheet capability with a 9.3% Core Capital Ratio will enable the group to support the dividend payout ratio as mentioned above.  Hence, we do not foresee its Kurnia Insurance and MBF Cards acquisitions to have a negative impact on the group’s dividend payout capability. 

Change to Forecasts

We are maintaining our FY13E PAT forecast of RM1,697.6m and FY14E forecast of RM1,903.3m.

Rating  MAINTAIN OUTPERFORM

We are maintaining our OUTPERFORM rating as our revised target price implies a potential total return of 20.3% (together with a 5.7% net div yield).

Valuation   Raised AMMB target price to RM7.40 (from RM6.70 previously) based on 1.4x FY14 book value of RM5.29 as we roll forward our valuation year. The TP implies a 11.7x FY14 PER.

Risks  Tighter lending rules and a margin squeeze.

Source: Kenanga