CIMB Research raises target price for AMMB, says NPL sale a positive surprise

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KUALA LUMPUR (Jan 4): CIMB Research raised its AMMB Holdings Bhd share target price (TP) to RM4.39 from RM4.10 after AMMB announced that its wholly-owned subsidiaries AmBank (M) Bhd and AmBank Islamic Bhd are selling their respective non-performing loans (NPLs).

It was reported that AMMB is cleaning up the loan books in AmBank (M) and AmBank Islamic by selling off RM553.91 million of NPLs to Aiqon Capital Group Sdn Bhd.

CIMB analyst Winson Ng wrote in a note today that the research house maintained its 'hold' call for AMMB shares. At Bursa Malaysia, AMMB shares rose two sen to RM4.35 at 11:03am.

"We see the above proposal as a surprise as it was not previously guided by AMMB. The proposal would be positive for the group due to the potential gains, which could enhance its FY3/19F net profit.

"We estimate that AMMB's FY19F net profit could increase 0.3% for each RM5.54 million gained from the proposed NPL sale, i.e. for every 1% of the quoted selling price of RM553.9 million," Ng said.

From a price-to-book value (PBV) viewpoint, AMMB shares were traded at 0.76 time, the second lowest after Affin Bank Bhd's 0.45 time among Malaysia banking stocks covered by CIMB. The research house said the average PBV ratio among the banking stocks were 1.43 times.

MIDF Amanah Investment Bank Bhd analyst Imran Yassin Yusof said MIDF expects the proposed NPL sale will have a positive impact on AMMB's earnings.

"However, it could not be quantified as yet given that the headline purchase price is subject to adjustments. Nevertheless, based on our initial estimation, we believe that the sale could add between 14% and 20% from our current FY19 earnings forecast.

"All-in, we maintain our 'neutral' call (for AMMB shares) with an adjusted TP of RM4.50 (from RM4.10)," Imran Yassin said.