Tuesday, August 16, 2011

AMMB Holdings: Boosted By Trading Gains & Lower Provision

16 August 2011
Price Target: RM7.71
Share price: RM6.48


Results
1QFY12 net profit of RM441.5m (+39.6%% qoq; +19.9% yoy) was above expectations, accounted for 29% and 28.5% of HLIB and consensus forecasts respectively.

Deviations
Higher-than-expected gains from sale of securities (mainly AFS and also from HFT) and lower-than-expected provision (mainly from write back of Individual Allowance and higher recovery).

Dividend
None for the quarter.

Highlights
# Management indicated that the gains on sale of securities are unlikely to be repeated while 1QFY12 low credit charge of 39bps (annualized) should normalize to circa 55-60bps for FY12.

# FY12-14 KPIs remained unchanged.

# Net profit recorded double-digit expansion mainly due to the profit from sale of securities and lower provision which more than offset the significant reduction in NIM and rise in overheads (mainly from higher salary for unionized staff and higher headcounts).

# Loans growth was lower than industry average and mainly driven by SME and corporate, in accordance with its objective given the irrational pricing in certain segments of retail business.

# Deposit growth was stronger than loans growth and ahead of industry average.

# Asset quality continued to improve and capital ratios well positioned for Basel III and its dividend policy of 40%.

Risks
Unexpected jump in impaired loans, lower than expected loan growth and impact from Basel III on capital.

Forecasts
Unchanged in view of lower trading profits and higher credit charge ahead while management also indicated that 1QFY12 ROE of 16.8% ROE is expected to normalize to within its KPI range of 14-16% over FY12-14 (vs. HLIB’s projected KPI of 14.1% for FY12)

Rating - BUY
Positives
Value propositions from ANZ have improved asset quality, risk management and competitiveness. Improving profitability and higher dividend guidance as well as focus on profitable growth are bearing fruits.

Negatives
Impact on interest income from rising interest rate albeit marginal while profits from AFS and HFT book boosted earnings, interest income in the future will also be reduced.

Valuation
Target price maintained at RM7.71 based on Gordon Growth (ROE of 14.2% and WACC of 9.5%).



Source: HLIB Research

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