AMMB: Looking beyond the RM2.83 bil global settlement saga

THE release of AMMB Holdings Bhd’s 3Q FY3/2021 yesterday was very much clouded by how the AmBank RM2.83 bil global settlement – which has been touted as ‘mother of all fines’ – is going to impact the group in the near future.

Given that it is a known fact that the stock will be subject to short- or perhaps medium-term repercussion from this legacy issue, why then cry over spilt milk. More importantly, it should be about putting the issue behind it, get the act together and move forward.

After all, the management has assured that with the global settlement in place, it would be unencumbered by the said past dealings going forward and more so, that the group has sufficient means for the settlement.

This, according to Kenanga Research, will be immediately provided for as part of AMMB’s 4Q FY3/2021’s cost and comes at the expense of FY3/2021 dividends.

“(Its) CET-1 (common equity tier 1) capital is expected to fall to 11.0% from 13.5%-pre dividends owing to this,” projected analyst Clement Chua in a results review.

“On the business-front, the management guided for credit cost for FY3/2021 to close between 80-100 basis points (bps) according to previous guidance.

‘The greater impairment for allowance to come should be directed towards its retail and O&G segments.”

As for its results, Kenanga Research opined that AMMB’s 9M FY3/2021 net profit after tax and minority interests (PATAMI) which fell 20.8% to RM866.3 mil as a result of higher impairment charges is within expectations.

Post results, Kenanga Research expects AMMB to report a net loss after tax and minority interests (LATAMI) of RM1.41 bil for its FY3/2021 which entails a negative 245% revision after incorporating the RM2.83b global settlement provisions to be booked in 4Q FY3/2021.

“Meanwhile, we also lower its FY2022E earnings by 3.3% to capture slightly higher provisions expectations,” justified Chua.

All-in, Kenanga Research downgraded AMMB to “market perform” (from “outperform” previously) with a lower Gordon Growth Model (GGM)-based target price of RM3.05 (from RM3.70 previously).

“We reckon there could be a negative knee-jerk reaction on the stock when its suspension is lifted this Wednesday,” projected the research house.

“We believe perception for the stock should remain sour for the near term. However, we believe the development is not expected to hamper the overall business landscape of the group, hence we recommend investors to spot buying opportunities and accumulate on weakness.”

Meanwhile, MIDF Research described the global settlement saga as “a shame” given AMMB had navigated well the tough operating environment brought upon by the COVID-19 pandemic.

“Its strong income growth supported by improved NIM (net interest margin), robust loans and deposits growth had been a particular highlight,” argued analyst Imran Yassin Yusof.

“Moreover, we expect to see further improvement in FY2022 with the vaccine rollout and economic recovery. However, we cannot ignore the deep impact the global settlement will have to its FY3/2021 earnings and to investors’ sentiment.”

Against such backdrop, MIDF Research maintained its “trading sell” call with an unchanged target price of RM2.75 on AMMB.

“A re-rating catalyst will be faster than expected accretion of loss capital,” added the research house.

AMMB which was suspended for two days effective yesterday (March 1), will resume trading tomorrow (March 3). It was last traded at RM3.16. – March 2, 2021


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