An analyst has lowered its earnings forecast for 2 banks for FY22 due to the announcement of the tax in Budget 2022
by S BIRRUNTHA / Pic by TMR FILE PIX
CGS-CIMB Securities Sdn Bhd has estimated the prosperity tax or Cukai Makmur will dent earnings of banks and for starters, lowered its earnings forecast for Alliance Bank Malaysia Bhd (ABMB) by 9.9% for the financial year 2022 (FY22) and FY23 due to the announcement of the tax in Budget 2022.
CGS-CIMB analyst Winson Ng, however, raised ABMB’s net profit forecast for FY23 and FY24 by 5% and 6.4%, respectively, on factoring in a 25-basis point (bp) hike in the Overnight Policy Rate (OPR).
“Fixing our assumed dividend payout at 40%, our projected dividend per share is also adjusted by the same margin as our net profit forecasts — cut by 9.9% in FY22F but raised by 5% in FY23F and 6.4% in FY24F,” he wrote in a note yesterday.
Following the earnings revisions, Ng projected net profit growth for ABMB in FY22 has been lowered from 18.2% to 6.5%, dragged down by the negative impact of Cukai Makmur.
He forecast net profit growth to lift for the subsequent two years — from 16.7% to 35.9% for FY23 (due to lower base in FY22 and OPR hike) and from 6.5% to 8% for FY24 (lifted by OPR hike).
As such, Ng has maintained a ‘Reduce’ call on ABMB on the ground it faces higher credit risks from the Covid-19 pandemic compared to its peers, reflected in its guidance of a credit charge-off rate (CCOR) of 90bp in FY22, one of the highest in the sector.
He added that potential rerating catalysts for the bank include higher CCOR and a wider-than-expected increase in its gross impaired loan (GIL) ratio, which is believed to take place when the industry’s GIL ratio peaks in 2022 following the withdrawal of repayment assistance by banks.
“We also expect ABMB’s earnings to be negatively affected by the interest exemption for B50 borrowers in the fourth quarter of 2021 (4Q21) and the first half of 2022 (1H22), with our estimated negative impact of RM17.2 million and Cukai Makmur.
“For valuation, we increase our assumed discount to our dividend discount model (DDM) value from 10% previously (for credit risks from Covid-19 pandemic) to 20% with the additional 10% discount to reflect the risks from any new measures that would be detrimental to its earnings,” he noted.
This is more than offset by the 5% to 7% increase in FY23 to FY24 net profit, as well as the roll-over of CGS-CIMB’s target price (TP) to end of 2022, leading to an increase in TP from RM1.96 to RM2.10.
Similarly, CGS-CIMB cut its projected FY22F net profit for AMMB Holdings Bhd by 11.1% due to Cukai Makmur but raised its FY23 to FY24F net profit forecast by 2% to 4% on OPR hike assumptions.
Keeping an assumed dividend payout at 40%, Ng has adjusted AMMB’s dividend forecast by the same magnitude as the changes in net profit — a cut of 11.1% for FY22F but an increase of 2.5% for FY23F and 3.5% for FY24F.
“After factoring in the OPR hike assumption in mid-2022F, we are now forecasting higher net profit growth of 19.5% in FY23 and 4.7% in FY24 for AMMB, compared to our projected growth rates of 3% to 4% previously.
“Our FY23 net profit growth is also lifted by the lower base of FY22 net profit, which is reduced by 11.1% due to Cukai Makmur,” he wrote in a note yesterday.
Ng maintained the ‘Add’ call on AMMB given its attractive valuation, as well as its calendar year forecast price-to-earnings of 6.8 times is the lowest in the sector and significantly lower than the sector average of 11.9 times.
He added that the potential re-rating catalyst for the stock is continuous earnings recovery with projected net profit growth of 19.5% in FY23 and 4.7% in FY24.
He said some of the measures relating to the repayment assistance offer by the bank to its lenders were negative for AMMB’s earnings. This includes the waiver of interest on fixed-rate loans in 2Q20 and 3Q20 (which led to a modification loss of RM58 million for AMMB) and a three-month interest exemption for B50 borrowers in 4Q21 and 1H22 which had caused an estimated negative impact of RM48.9 million.
Due to this, Ng expects AMMB’s earnings will be negatively affected by the Cukai Makmur.
“To value AMMB, we increase our assumed discount to DDM value from 15% previously (for credit risks from Covid-19) to 25%, with an additional 10% discount for risks from any new measures that will be detrimental to AMMB’s earnings.
“This reduces our TP from RM3.72 to RM3.64 for AMMB, despite higher FY23 to FY24 net profit forecasts and the rollover of our TP to the end of 2022,” he noted.