AmBank’s 1Q earnings seen taking a hit

An analyst took a more cautious view, estimating that AmBank’s FY21 earnings will decline by over 25% YoY

by SHAHEERA AZNAM SHAH/ pic by BLOOMBERG

AMMB Holdings Bhd’s (AmBank) earnings likely took a hit in the April to June 2020 period, as additional provisions would be needed in anticipation of an increase in bad loans due to the fallout posed by the Covid-19 pandemic.

For AmBank’s first quarter ended June 30, 2020 (1QFY21), the lender’s earnings could decline 18.5% year-on-year (YoY) to about RM320 million, MIDF Amanah Investment Bank Bhd (MIDF Research) head of research Imran Yassin Yusof said.

Net profit for the financial year ending March 31, 2021 (FY21), could fall by 5% YoY to RM1.28 billion.

“We believe AmBank will be weighed down by additional provisions, as has been the trend for banks globally.

“With the lack of visibility stemming from the current situation due to the pandemic, it will not be a surprise if more provisions will be needed, especially after the loan moratorium ends in September,” Imran told The Malaysian Reserve.

The country’s sixth-largest bank by assets is scheduled to release its 1QFY21 results on Aug 20.

In FY20, AmBank’s net profit dropped 10.9% to RM1.34 billion from RM1.51 billion the year before, while revenue rose 2.2% to RM9.32 billion from RM9.12 billion previously.

Its net profit for the 4QFY20 ended March this year declined 46.1% to RM247.54 million from RM459.67 million last year, while revenue slipped 5.1% to RM2.21 billion from RM2.33 billion previously.

The bank attributed the dampened performance to a RM194.85 million loan impairment allowance.

A local industry analyst took a more cautious view, estimating that AmBank’s FY21 earnings will decline by over 25% YoY to around RM1 billion.

“We expect a negative result for all the banks due to the full effect of the lockdown, as well as the Day 1 modification loss on the moratorium.

“It should be similar for AmBank with its earnings expected to drop to RM1 billion for its FY21,” she said.

On the plus side, the banking group’s loan growth in the current year should remain steady, backed by the government’s economic stimulus packages, Imran said.

“We believe loan growth will be stable due in part to the lack of repayment during the loan moratorium period and the interest we have observed for the purchase of residential properties and passenger cars, following the announcement of the shortterm National Economic Recovery Plan, or Penjana, stimulus,” he said.

However, small and medium enterprise loans will not perform as well as before, given the current challenging business environment, Imran added.

AmBank recorded loan growth of 5% in FY20, while gross impaired loans ratio increased to 1.73% from 1.59% the year prior. It said in June, it’s expecting loan growth of between 3% and 4% in FY21.

The bank also said its one-off Day 1 modification loss would affect its revenue by RM80 million in FY21, which translates into an after-tax impact on net profit of RM20 million.

On AmBank’s dividend policy, Imran said local lenders are expected to cut back on their dividend payouts this year to sustain capital and build up buffers amid the economic slowdown.

“In terms of dividends, we are not surprised by the scaling back given the current situation may require banks to maintain more capital, as a prudent measure.

“However, we opine that this will likely be temporary and will return to pre-Covid-19 levels once the economy and situation improve in earnest,” Imran said.

He has a ‘Buy’ recommendation on AmBank, with an unchanged target price of RM3.60. Among analysts surveyed by Bloomberg, nine have ‘Buy’ calls on the banking stock, while five recommend ‘Hold’ and three are calling to ‘Sell’.

Shares of AmBank closed 0.34% or one sen lower at RM2.89 yesterday, valuing the banking group at RM8.69 billion.