Higher provisions in 3QFY22
BUY maintained, TP raised
3QFY22 core earnings were below expectations and we lower FY22/23E earnings by 6-12% on higher credit cost assumptions. We look to core earnings growth of 13% in FY23E in the absence of Cukai Makmur and marginally lower provisions. We roll forward valuations to CY23 and peg on a PBV of 0.7x (CY23E ROE: 8.0%) for a higher TP of MYR4.05 (+15sen).
Below expectations due to higher provisions
AMMB’s 3QFY22 core net profit of MYR211m (-15% YoY, -27% QoQ) took 9MFY22 core net profit to MYR852m (-4% YoY) – the results were below expectations at 71% of our full-year forecast/consensus. The primary variance stemmed from increased provisions against troubled O&G accounts. Reported 3QFY22 net profit included a MYR234m tax credit that the group is hoping to be reimbursed from its previous MYR2.83b Global Settlement, offset in part by a MYR75m provision for Cukai Makmur. We
cut FY22/23E earnings by 6%/12% on higher credit cost assumptions.
15% of loans under Repayment Assistance
Loans under repayment assistance (RA) amounted to 15% of total loans, down from a peak of 32% in Aug 2021. Total loan loss coverage including regulatory reserves has since built up to a healthy 164%. Management guides for full-year credit cost of 72bps (74bps in 9MFY22), which implies
a 4QFY22 credit cost of about 65bps.
Hoping to resume dividend payments
AMMB’s capital ratios are recovering nicely and its CET1 ratio stood at 11.9% end-Dec 2021. This is expected to build up to about 12.2% by endMarch 2022 even before factoring in any enhancement from the divestment of its insurance business, which could accrete about 25bps. With this build up, management is working towards a dividend payment in FY22. We have conservatively assumed a dividend payout ratio of 20% against a historical average of 30-40% (nil in FY21).