HAVING put the 1Malaysia Development Bhd (1MDB) fiasco behind it, both the cukai makmur a.k.a prosperity tax and Bank Negara Malaysia’s (BNM) overnight policy rate would have impact – positively and negatively – on AMMB Holdings Bhd’s FY3/2022’s earnings prowess.
Having factored in both elements with the assumption of a 25 basis points rise in OPR come mid-2022, CGS-CIMB Research resorted to lowering AMMB’s FY2022F net profit by 11.1% (due to cukai makmur) but raise its FY3/2023-3/2024F net profit forecasts by 2-4% (on OPR hike assumptions).
“Keeping our assumed dividend payout at 40%, we adjust our DPS (dividend per share) forecasts by the same magnitude as the changes in net profit – a cut of 11.1% for FY3/2022F but an increase of 2.5% for FY3/2023F and 3.5% for FY3/2024F,” explained analyst Winson Ng in a company update.
To re-cap, cukai makmur is a one-off special tax proposed by the Government in Budget 2022 whereby a higher tax rate of 33% (vs the current statutory tax rate of 24%) will be imposed on FY2022F pre-tax profit of companies in excess of RM100 mil.
Aside from cukai makmur, CGS-CIMB Research is wary about the negative impact deriving from AMMB’s offering of repayment assistance to its borrowers, in particular measures such as the waiver of interest on fixed-rate loans in 2Q 2020 and 3Q 2020 (which led to a modification loss of RM58 mil for AMMB) and a three-month interest exemption for B50 borrowers in 4Q 2021 and 1H 2022 (estimated negative impact of RM48.9 mil).
“To value AMMB, we increase our assumed discount to DDM (dividend discount model) value from 15% previously (for credit risks from COVID-19) to 25% with an additional 10% discount for risks from any new measures that will be detrimental to AMMB’s earnings,” justified the research house.
“This reduces our target price from RM3.72 to RM3.64 despite higher FY3/2023-FY3/2024 net profit forecasts and the roll-over of our target price to end-2022F.”
All-in-all, CGS-CIMB Research reiterated its “add” call on AMMB given its attractive valuation – the company’s CY2022F price-to-earnings ratio (P/E) of 6.8 times is the lowest in the sector and significantly lower than the sector average of 11.9 times.
“The potential re-rating catalyst for the stock is continuous earnings recovery with projected net profit growth of 19.5% in FY3/2023F and 4.7% in FY3/2024F,” added the research house.
At 11175am, AMMB was down 3 sen or 0.92% to RM3.22 with 250,500 shares traded, thus valuing the company at RM10.67 bil. – Nov 9, 2021
