AMMB Holdings - Loans Loss Recovery on Track

The group’s annualised 1HFY13 results, which were largely in line with expectations, were boosted by robust recovery in loans losses. Meanwhile, its pre-provision operating profits fell 7.1% y-o-y. The bank’s underlying core net interest income was flat as NIM pressure intensified (-11bps q-o-q), while noninterestincome slipped 17.2% y-o-y due to the high base effect stemming from 1H12’s lumpy trading gains. We are keeping our estimates as well as our RM7.07 FV, implying a P/BV of 1.68x (ROE: 14.1%, Growth: 4%, COE: 10%). Maintain NEUTRAL.

In line. AMMB’s annualised 1HFY13 net profit was largely in line with consensus and our full-year forecasts, representing 51.4% and 50.3% of the respective estimates. The group’s 1HFY13 earnings expanded by 7.1% y-o-y, largely driven by strong loans loss recovery and the positive impact from the adoption of MFRS139, which led to a marginal 7bps dip in 1H13 annualised credit cost vs FY12’s 51bps. In fact, the 1HFY13 preprovision operating profit declined 7.1% y-o-y as trading gains from the sale of AMMB’s investment securities continued to normalise (-37% y-o-y), dragging down overall group non-interest income by 17.2%.

NIMs pressure intensifies. Net interest income growth was flat y-o-y despite a reasonably robust 1HFY13 annualised loans growth of 12%. In the meantime, net interest margin (NIM) pressure remained intense, with NIMs declining 11bps q-o-q and 8bps y-o-y. Continued competition in mortgage loans, coupled with the group’s aggressive asset rebalancing towards lower-yielding corporate loans, were the key drags on loan yields. On a q-o-q basis, earnings declined 11.6% as trading gains continued to normalise downwards in 2Q13 (-55% q-o-q).

Asset quality still intact. The group’s non-performing loans (NPLs) continued to decline alongside a corresponding uptrend in loans loss coverage ratios despite a q-o-q decline in provision charge. This was partially driven by its de-risking strategy via its loan rebalancing efforts towards lower-risk top-tier corporate loans and mortgages and away from the higher-risk mass-market auto financing business. Meanwhile, gross impaired loans ratio slipped to 2.22% from FY12’s 2.45%, while the loans loss coverage ratio climbed to 121.8% from 114.5%, the third-highest in the industry. That said, management has guided for normalisation in its exceptionally low 1HFY13 credit cost to a more sustainable 25bps for full-year FY13, given the currently depressed economy.

Source: OSK