AMMB Holdings Bhd
(Aug 13, RM3.98)
Downgrade to hold with a lower target price (TP) of RM4.30: AMMB Holdings Bhd is expected to record respectable earnings on the back of negative credit costs in the upcoming quarter, which will come from write-back and recoveries. We think revenue growth will still be unexciting due to moderating asset yields, deposit costs that have yet to be repriced and weak market sentiment (impacting wealth management and brokerage income). The group’s primary loan growth engines are still intact but will be dragged by auto and corporate loans. After lower overheads in financial year 2018 (FY18), costs will play a smaller part in overall earnings growth.
Looking further ahead, growing revenue will be difficult for AMMB in the immediate term due to unfavourable external factors dragging otherwise solid progress of its Top 4 initiative. As such, we cut our FY20-FY22 earnings forecasts by 1%-3% on slower revenue growth assumptions. In our view, achieving a stronger return on equity (ROE) on a sustainable basis is unlikely without more structural change.
We are more conservative in our FY20 to FY22 estimates on lower revenue expectations and more ramped-up credit cost normalisation.
Corporate actions and renewed interest in AMMB’s major shareholders’ potential divestment of their stakes in the company could also spark a rerating.
We lowered our TP from RM4.75 to RM4.30 after imputing lower earnings estimates and revising our ROE assumption to 8% (from 8.5%). — AllianceDBS Research, Aug 13