POST the first tranche of its RM2.83 bil settlement related to the 1Malaysia Development Bhd (1MDB) fiasco amounting to RM1.8 bil on July 2, the near term prospect of AMMB Holdings Bhd has begun to look up again.
The remaining settlement payment of RM1.03 bil will be settled in December 2021 and July 2022 (RM515 mil) with the monies to be deposited into Malaysia’s Assets Recovery Trust Account.
Looking beyond the 1MDB issue, CGS-CIMB Research has upgraded AMMB from “reduce” to “add” with a higher target price of RM3.72 (from RM2.63 previously) premised on the expected recovery in its core earnings per share (EPS) growth to 52% in financial year 2022 (forecast).
Moreover, the banking group also has two potential re-rating catalysts, namely:
• Above-industry loan growth (the momentum of 7.6% year-on-year [yoy] at end-June being the strongest in the sector); and
•Having posted the lowest CY2021F price-to-earnings ratio (P/E) of 6.3 times (vs the sector’s average of 11.7 times) despite having CY2021F return on equity (ROE) of 8.9% which is close to the sector’s average of 9.4% in CY2021F.
“We also gather that AMMB has embarked on 30 projects of operational process reviews/revamp (assisted by independent reviews) to avoid the recurrence of the 1MDB case,” justified analyst Winson Ng in a results review.
According to CGS-CIMB Research, AMMB’s core net profit fell 7.3% yoy in 1Q FY3/2022, dampened by an 18.6% yoy decline in non-interest income and a 342.6% yoy spike in loan loss provisioning (LLP).
For 2Q FY3/2022F, the research house expects AMMB’s net profit to be close to its 1Q FY3/2022’s RM386.6 mil, supported by yoy expansion in net interest margin and above-industry loan growth against elevated LLP.
Meanwhile, Kenanga Research maintained its “hold” rating on AMMB with a higher target price of RM2.85 (from RM3.20) as the research house ascribed higher ROE assumptions in its Gordon Growth Model (GGM)-derived price to book value (PBV) valuations.
“This is given the bank has built and strengthened a sustainable enough frame to drive itself post the pandemic,” opined analyst Clement Chua. “We also believe investor sentiment is less tepid after shaking off the global settlement saga.”
At 10.58am, AMMB was up 7 sen or 2.31% to RM3.10 with 4.26 million shares traded, thus valuing the company at RM10.27 bil. – Sept 1, 2021
