AMMB Holdings Bhd (AMMB) utilised its MYR538m tax credit in a kitchen-sinking exercise, chiefly to further solidify asset quality.
RHB Investment Bank (RHB) said in their Malaysia Results Review note today (Feb 27) that they reiterate their rating on the stock, premised also on growth and dividend upside, as well as its attractive valuation. ∙
RHB keeps BUY with a new MYR4.80 TP from MYR4.70, 11% upside, c.5% FY25F (Mar) yield.
Results review
3QFY24 headline net profit of MYR543.4m (+20% YoY, +16% QoQ) brought the 9M total to MYR1.39bn (+6% YoY). For the 9M, NII dipped 9% YoY on the back of a 37bps YoY NIM compression, though non-II strength (+19% YoY) mitigated the negative impact. Opex decreased 1% YoY from a high base, as collective agreement adjustments were made in 4QFY23.
3QFY24 saw a slight 3bps NIM compression QoQ as the May 2023 Overnight Policy Rate hike was reflected in repriced fixed deposits. However, non-II surged 17% QoQ on stronger fee and trading income.
A slight miss
1HFY24 revenue of MYR798bn (+2.4%) and core earnings was a minor miss at 47.2% and 47.8% of our and Street full-year estimates due to the weaker-than-expected margin, in view of the seasonally stronger 1H from the ramp-up of certain premium smartphone brands. Topline was flattish (+2.4%YoY) with less exciting gadget sales, cushioned by the increase in content and stronger USD against MYR.
However, additional fixed costs from new hiring and set up costs for new product development, coupled with the glitches in electricity supply undermined 1HFY24 EBITDA margin to 26.5% (from 33% in 1HFY23). A second interim DPS of 2.2 sen was declared (2QFY23: 2.2 sen), ex-date on 13 Mar.
Sustained loadings
Radio frequency (RF) products made up 64% of 2QFY24 revenue, followed by optoelectronic products of 30%, and 6% of legacy and generic integrated circuits or ICs. The higher QoQ (+7.9%) and YoY (+2.9%) revenue of MYR414.1m were buoyed by sustained strong loadings from its customers in the RF and optoelectronic businesses, coupled with favourable FX movement.
This contributed to the growth in QoQ core profit of MYR89.8m. However, YoY core earnings were weighed down by the higher electricity rates and new product set up costs. EBITDA margin was down to 25.7% (from 30.7% in 2QFY23) due to the above mentioned reasons.
FY24F earnings are expected to be supported by new memory products, System on Module for power management modules and high-power light emitting diode or LED products. Also, the maiden contribution from its 54.5%-owned Yiwu Semiconductor International Corp plant in China is expected, with the ramp-up of the new System In Package or SiP line from a smartphone customer.
Forecasts and ratings
RHB cuts their FY24F earnings by 4.9% on weaker margin, resulting in a lower MYR3.58 TP, based on an 31x CY24FP/E (+1.5SD from its 5-year mean) and a 2% ESG premium. Despite the unexciting smartphone market/sales, INRI’s stickier earnings profile is expected to contribute positively in FY24F given i) Its premium product exposure that fared relatively well, and ii) diversification strategy to other products and clients.
Key downside risks are weaker-than-expected 5G smartphone orders, nonrenewal of contracts, low production yield, and unfavourable FX movement.
AMMB’s 3QFY24 results within expectations
Maybank Investment Bank Berhad (Maybank IB) today said AMMB’s 3QFY24 results were within expectations and maintain their forecasts but raise our TP to MYR5.05 from MYR4.75, on a marginally higher CY24E PBV of 0.83x (0.77x previously; FY25E ROE of 8.7% vs. 8.6% before).
Maybank IB also raised their FY24E dividend payout ratio to 40% from 35%.
Within expectations
AMMB reported a 3QFY24 core net profit of MYR408m (-8% YoY, -13% QoQ), which took 9MFY24 core net profit to MYR1.23b (-5% YoY) – within expectation at 75%/72% of our full-year forecast/consensus respectively.
The group recognised an additional tax credit of MYR538m (out of MYR772m) pertaining to its Global Settlement payment of MYR2.83b in 2021, but took the opportunity to reallocate this by a) topping up its impairment allowances and b) setting aside an additional provision of MYR80m for various anticipated costs.
Positive move on provisions
The group’s absolute gross impaired loans (GILs) were stable QoQ and higher by 11% on a YTD basis. The group’s GIL ratio was 1.60% end-Dec 2023, up from 1.46% end-Mar 2023.
Given its large tax credit, management took the opportunity to offset this by recognising one-off credit impairment overlays of MYR328m in 3QFY24.
This raised its credit cost to 74bps in 3QFY24 from 17bps in 2QFY24 and 51bps in 1QFY24, but positively, this improved the group’s loan loss coverage to 110.7% end-Dec 2023 from 96.2% end-Sep 2023.
Management guides for sustainable credit cost of 30- 35bps moving forward.
Much improved capital ratios
With the tax write-back, AMMB’s CET1 ratio improved substantially to 13.4% end-Dec 2023 from 12.7% end-Sep 2023.
The group’s capital ratios are comfortable and we believe these paves the way for higher dividend payouts. Maybak IB raised their FY24E payout ratio to 40% from 35%.
