This article first appeared in The Edge Financial Daily on May 18, 2018
AMMB Holdings Bhd
(May 17, RM3.50)
Maintain outperform with an unchanged target price (TP) of RM4.90: No concerns going forward. The portfolios of AmBank are well diversified in various sectors across the board with regard to loan portfolios for small and medium enterprises (SMEs).
AmBank’s loan portfolios are also not exposed to any controversial projects. Management added that exposure to infrastructure projects such as the high-speed rail and East Coast Rail Link are negligible as well. On sectorial exposure, management highlighted that construction and infrastructure-related projects are at 8% (to total loans) with exposure to government-linked companies at 6% (to total loans) with the added advantage of good credit risks for these companies.
Management pointed out that its government-impaired loans are still contained at around RM1.7 billion. Around RM600 million of the impaired loans are from the commercial real estate sector with nearly RM500 million exposed to two accounts.
Management said its impaired loans are well collateralised. Its exposure to the commercial real estate sector is at 15% with residential property at 26% (as of December 2017) and management is satisfied with the asset quality of both sectors. We are positive on its exposure to residential mortgages as its portfolio is exposed to mid-end affordable housing. It is not focused on low-end affordable housing and high-end properties due to the perceived oversupply situation in these segments.
Management also highlighted that its fourth quarter of financial year 2018 (4QFY18) results will be on track with traction coming from its fund-based income segment with a better net interest margin (NIM). Going forward, management also expects the impact on common equity tier 1 arising from Malaysian Financial Reporting Standard 9 to be neutral. Our key assumptions for FY18 estimates are as follows: loan growth at less than 5%, credit costs at four basis points and NIM at 1.95%.
We reiterate our TP of RM4.90 based on a blended FY19 estimated price-to-book value (PBV) per price-earnings ratio (PER) of 0.8 times against 9.4 times. The PBV is to reflect a cautious outlook for return on equity ahead and the PER is to reflect our cautious optimism about loans going forward. — Kenanga Research, May 17