AMMB Holdings Bhd (Dec 21, RM5.90)
Maintain hold with target price RM5.80 from RM6.70: Competition for deposits remains intense, and we expect further pressure in funding costs.
AMMB’s portfolio re-balancing appears to be biased towards a rate hike — variable rate loans were 53% of total loans as at September compared with 47% a year ago. However, this strategy to better position itself for a rising interest rate environment could work against AMMB, as we expect Bank Negara to shift to an easing mode and cut overnight policy rate by 50 basis points to 2.5% (from 3%) by end of 1Q12 to pre-empt any slowdown in the economy.
Management relayed a cautious tone post 2Q12 results. We raised operating expenses as AMMB invests and improves its core banking platform and FY12-14F cost-to-income ratio assumptions were adjusted to 42%/42%/41% (from 40%/40%/39%), in line with management’s guidance.
We also raised provisions in FY12 in anticipation of a more proactive provisioning stance in 2HFY12. Other growth levers were unchanged — FY12F loan and deposit growth targets were maintained at 8%. AMMB’s non-interest income will remain susceptible to capital market flows as more than half (52%) stem from market-related activities.
We expect fund raising activities in the small-to mid-market segment (AMMB’s captive market) to remain weak in the near term, given the cautious market outlook.
Maintain “hold”, target price cut to RM5.80 based on the Gordon Growth Model, after earnings revisions and assuming 14.5% return on equity (from 15.5%), 6% growth and 11.5% cost of equity. Our RM5.80 implies 1.4 times CY12 book value, which is equivalent to +1 standard deviation from mean. — HwangDBS Vickers Research, Dec 21
This article appeared in The Edge Financial Daily, December 22, 2011.
Maintain hold with target price RM5.80 from RM6.70: Competition for deposits remains intense, and we expect further pressure in funding costs.
AMMB’s portfolio re-balancing appears to be biased towards a rate hike — variable rate loans were 53% of total loans as at September compared with 47% a year ago. However, this strategy to better position itself for a rising interest rate environment could work against AMMB, as we expect Bank Negara to shift to an easing mode and cut overnight policy rate by 50 basis points to 2.5% (from 3%) by end of 1Q12 to pre-empt any slowdown in the economy.
Management relayed a cautious tone post 2Q12 results. We raised operating expenses as AMMB invests and improves its core banking platform and FY12-14F cost-to-income ratio assumptions were adjusted to 42%/42%/41% (from 40%/40%/39%), in line with management’s guidance.
We also raised provisions in FY12 in anticipation of a more proactive provisioning stance in 2HFY12. Other growth levers were unchanged — FY12F loan and deposit growth targets were maintained at 8%. AMMB’s non-interest income will remain susceptible to capital market flows as more than half (52%) stem from market-related activities.
We expect fund raising activities in the small-to mid-market segment (AMMB’s captive market) to remain weak in the near term, given the cautious market outlook.
Maintain “hold”, target price cut to RM5.80 based on the Gordon Growth Model, after earnings revisions and assuming 14.5% return on equity (from 15.5%), 6% growth and 11.5% cost of equity. Our RM5.80 implies 1.4 times CY12 book value, which is equivalent to +1 standard deviation from mean. — HwangDBS Vickers Research, Dec 21
This article appeared in The Edge Financial Daily, December 22, 2011.
