May 24, 2010

AMMB HOLDINGS A Record Year

Current Price :RM4.93 Target (12-mth): RM5.50
Maintain BUY with a target price of RM5.50, based on 1.6x 1-year forward P/B and PE of 14x.

AMMB Holdings made a record profit for FY10. It is likely to maintain this momentum with management committed to delivering mid-to-high teens growth for the next three years, driven by fee income and a focus on higher-yielding credit products. Maintain BUY with a target price of RM5.50, based on 1.6x 1-year forward P/B and PE of 14x.

Continue to deliver record earnings. Management is confident that AMMB will continue to deliver record earnings for FY11 after putting most of the infrastructures in place. Business lending is back on track after the market rate reverted back to
normal. For FY11, management is guiding for a net profit growth of 16-10% and ROE of 12-13%. We think this is achievable and have adjusted our earnings expectation by 6.2% for FY11.

Strong non-II from investment banking. Deals in the pipeline for its investment banking and new insurance segments are likely to lead to: a) higher brokerage income on higher trading value, b) initial public offerings, and c) higher advisory fees from debt and capital-raising exercises. Insurance activities also picked up following the tie-up with Malaysian Assurance Alliance Bhd. This is expected to continue as the earnings growth driver with potential earnings upside.

Sound earnings growth. We raised our earnings forecast by 6.2% for FY11 to factor in a stronger non-II and expect EPS of 40.0 sen, 47.5 sen and 54.0 sen for FY11, FY12 and FY13, respectively. We are looking at an ROE of 12.0% after the FY11 earnings revision, which is at the lower end of management’s target.

Maintain BUY with target price revised to RM5.50 from RM5.10, based on the banking sector’s 1.6x P/B or 1-standard deviation from P/B since 2006. At the target price of RM5.50, AMMB is valued at 1-year forward PE of 14.0x.

below: click to enlargeammb-financial-analysis

by UOBKayHian