AMMB unchanged pending further updates

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KUCHING: With changes at the helm imminent for AMMB Holdings Bhd (AMMB), analysts at AllianceDBS Research Sdn Bhd (AllianceDBS) see not much changes for the group at the moment pending possible updates from the boardroom.

The stock dipped by two sen or 0.32 per cent yesterday to close ar RM6.28 per share. About 19,79 million shares were traded yesterday.

On Thursday, AMMB officially announced that its group managing director Ashok Ramamurthy will be stepping down citing family reasons as well as to resume his career in a senior executive role at ANZ. The Board is in the process of identifying a replacement.

It was also announced that the other three senior management personnel, said to be leaving the bank, will continue to serve the group in accordance to their contracts.

“AMMB tends to be in the limelight when it comes to potential changes in shareholders,” AllianceDBS Research said.

“We believe that ANZ is committed to this franchise as this is probably the only one of its operations where it has strong management control.

“That said, we would not discount any significant changes in its shareholding structure.

“We see little catalysts fundamentally as earnings trends appear to be weak going forward. Our target price and recommendation is unchanged but possible changes at the shareholders’ level could ignite a re-rating of the stock.”

The research firm went on to highlight that AMMB has yet to fully reap synergistic benefits from its recent mergers and acquisitions (M&As).

In the past few years, AMMB was involved in several acquisitions and tie-ups with big names such as MBF Cards, Kurnia Insurans and MetLife.

Meanwhile, the group also anticipated an unexciting year ahead for AMMB as the latter provided “the most cautious guidance against its peers.”

“AMMB guided loan growth at three per cent as it continues to pull back on risky segments (such as its auto and mortgage loans), while deposit growth is expected to match closely,” it explained.

“Accordingly, AMMB is expecting loan-to-deposit ratio to remain fairly high. AMMB expects net interestr margin to be compressed by circa15 basis points (bps) given that competition for deposits is intensifying as the banks prepare to fulfill the Liquidity Coverage Ratio requirement under

Basel III.

“Elsewhere, credit cost is expected to hover around 15bps, plagued by lower recoveries while non-performing loan ratios could inch up year on year against this challenging operating environment.

“Taking these into account, AMMB expects to end the year with return on equity of 14 per cent (inclusive of one-off gain from sale of insurance units).”

With non-interest income remains a wildcard, AllianceDBS Research is keeping an eye on its non-interest income as AMMB strives to extract value from its acquisitions, particularly in its life insurance segment.

“However, regression in premiums following detariffication could cause short-term volatility in underwriting margins for its general insurance business. We conservatively assumed non-interest income to total income ratio of 35 per cent.

“We trim FY15-16F earnings by five to seven per cent on higher provisions amid a tough operating environment. Slower loan growth and NIM pressures are expected to drag topline growth.”