KUALA LUMPUR (June 1): AMMB Holdings Bhd's (AmBank) latest earnings figures in the March quarter report largely missed analysts’ expectations, except for RHB Research, which said the bank beat its estimate for the financial year ended March 31, 2021 (FY21).
In a research note, Kenanga Research reduced its earnings estimate for FY22 by 5% to RM1.21 billion after imputing a higher credit cost assumption.
This came after AmBank posted earnings for FY21 which were below the research house’s earnings estimate.
“FY21 loss after tax and minority interests (LATAMI) was reported at RM3.83 billion. Excluding 4QFY21 one-off items, such as the RM2.83 billion global settlement amount, RM1.79 billion impairment of goodwill and RM147.8 million impairment of associates, core profit after tax and minority interest (PATAMI) amounted to RM940.5 million. This was a miss against our estimate, only making up 66% of our core PATAMI estimate on the same adjustments,” it said.
“The negative deviation on our end was due to underestimation of loan provisions despite management overlays already factored in at 3QFY21. We are unable to ascertain if consensus estimates have accounted for the adjustments,” it added.
Notwithstanding that, Kenanga Research maintained its “underperform” rating, albeit with a slightly higher target price (TP) of RM2.45 from RM2.40 previously.
Hong Leong Investment Bank (HLIB) Research, meanwhile, also lowered its TP for AmBank to RM2.85, from RM2.90 previously, after trimming its earnings forecasts by 1% to 3% to RM1.22 billion and RM1.32 billion for FY22 and FY23 respectively.
The cuts in earnings projections were due to higher loan loss provision, said HLIB Research, retaining its “hold” recommendation for the stock.
That said, the TP is at -1.5 standard deviation (SD) of its five-year mean price-to-book (P/B) and below the sector’s 0.88 times.
“The discount is fair given its softer return on equity (ROE) generation versus the sector average (lower by one percentage point [ppt]). While valuations appear to be undemanding, there are no compelling catalysts to rerate the stock,” HLIB Research noted.
RHB Research, on the other hand, also reduced its TP slightly to RM3.30, from RM3.40 previously, on the back of a higher credit cost assumption of 60 basis points (bps), higher than the 47bps to 50bps guidance to cushion downside risk from the latest round of lockdowns and potential default risk of one oil and gas (O&G) borrower.
Nonetheless, RHB Research kept its “buy” call for AmBank as it deemed the group’s FY21 core PATAMI to have beaten its expectations.
“Excluding the RM2.83 billion settlement, and RM1.9 billion goodwill and associate impairments, AmBank’s core PATAMI of RM962 million (-28% year-on-year [y-o-y]) beat our forecast by 5%,” it noted.
Overall, analysts are mixed on AmBank’s outlook following the swing to a loss for the latest financial quarter.
Kenanga Research said it is still cautious about the stock on impairment risk going forward.
“In addition, as management looks to rebuild its capital base post the global settlement, there is uncertainty over its dividend outlook. For now, our about 25% payout (below its historical low of 30%) could fetch about 3% yields. The group may also require time to regain strength in its ROE," it added.
For HLIB Research, it said although AmBank’s books are cleaner (thus fitter for a potential merger and acquisition [M&A] in the future), it is cautious because the bank would have to cope with a less-than-favourable perception after the unexpected global settlement and surprise capital raising.
Although external headwinds persist, RHB Research still sees AmBank on a recovery path after settling some legacy issues.
“We see downside risk to our credit cost guidance, but believe FY21’s level should be the ceiling,” it added.
Concurring with RHB Research’s view, MIDF Research, meanwhile, said it expects further improvement in FY22, with the vaccine roll-out and an expected economic recovery.
“Hence, we are upgrading our recommendation to 'neutral' (from 'trading sell') with a revised TP of RM2.85 (from RM2.75) by pegging its FY22 book value per share (BVPS) to a price-to-book value ratio (P/BV) of 0.6 times. Should the group manage to continue its stellar operational performance, we do not discount an upward rerating of our call,” it added.
MIDF Research is also positive on AmBank reorganising its balance by impairing its goodwill, citing that “this is expected to enhance the group’s ROE in the future".
AmBank's shares price was unchanged at RM2.85 at the noon break today — after trading in range-bound mode of between RM2.83 and RM2.88 as investors' appetite was capped by the rather disappointing results. At the current price, it had a market capitalisation of RM9.45 billion. A total of 1.9 million shares were traded.