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Thursday, April 27, 2017

Brokers Report: AMMB Holdings - Loan growth gaining traction



Retain HOLD with a higher target price (TP) of RM5.00



Highlights

  • Outlook improving. We are turning more positive on AMMB as previous concern on various issues is now easing while management recently guided on a more upbeat outlook with a higher loan growth projection for FY18.
  • Higher loan growth in FY18. For several years, AMMB’s loan growth was impacted by its rebalancing effort, especially to diversify away from hire purchase segment. We believe AMMB is now comfortable with current composition of hire purchase loan given the corrected yield in the segment reinforced by improving 2017 TIV outlook. Given this, we believe AMMB will achieve a loan growth of 6% in FY18, which majority will be driven by corporate and SME segments.
  • Various tie-ups in SME space. We notice that AMMB had recently made various tie-ups with SME related organizations to offer financing to this segment. Overall, we are positive on these tie-ups on future contribution to the SME segment. That said, we expect the SME arrangements to contribute a marginal 1% to FY18 and FY19 loan growth.
  • NOII getting strong. AMMB’s acquisition spree in the past years is now showing more positive results especially in the merchant business. Merchant business penetration rose by 29% to 54k devices. Should AMMB keep this momentum, we can expect potential upside to its NOII through interchange and acquirer fee strategy.
  • No strain in asset quality. Asset quality continued to recover for five consecutive quarters to 1.51% as at 3QFY17, slightly better than industry GIL. Meanwhile, loan loss-coverage increased slightly to 83.5%. Exposure to O&G segment reduced by RM600m in the last 9 months, and current exposure to this sector is now manageable at only 3% of total loans. Given the improving outlook of global oil price, the risk of further strain in this sector is minimal moving forward.
  • Improving NIM. NIM picked up strongly in 3QFY17 as a result of lower funding cost and liability management. NIM is expected to improve due to promising CASA growth as well as higher financing to the SME segment which carries higher yield.


Risks

  • Slower impact from de-risking of auto loan book and lower recoveries to impact bottom line.
  • Forecasts FY18 and FY19 earnings forecasts are revised higher by 0.6% and 0.7% as we impute higher loan growth of 6%.


Rating

HOLD (  )
  • Increasing presence in the SME segment is a right move despite stiff competition from other banks in the space. With appropriate execution strategy, outlook of AMMB is turning better with loan growth gaining traction.


Valuation

  • We raise our TP to RM5.00 (previously RM4.48) based on higher ROE of 8.9% and WACC of 9.6%. We maintain
HOLD rating on AMMB.


Source: Hong Leong Investment Bank Research - 27 April 2017

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