KUALA LUMPUR: AMMB Holdings Bhd (AmBank Group) does not deserve a "sell", following its RM2.83 billion settlement to the government, as its fundamentals remain largely intact, RHB Research said.
The firm said the RM2.83 billion settlement for its involvement in the 1Malaysia Development Bhd (1MDB) should release AmBank from further liabilities.
The bank had enough capital and liquidity to absorb the impact and management had been in discussion with various stakeholders (major shareholders, clients, depositors, and rating agencies) and most of them are supportive, RHB Research said in a report today.
The bank intends to rebuild Core Equity Tier 1 (CET1) to 11.5 per cent by the first quarter financial year 2022 but has not yet decided on a FY22F dividend outlook.
"We see downside risk to share price and believe it will take time for investors to regain confidence. That said, we do not believe AMMB deserves a Sell as its fundamentals remained largely intact," it said.
RHB Research said AmBank's nine months financial year 2021 profit after tax and minority interests was broadly in line with the firm's (95 per cent) and consensus (87 per cent) pre-settlement forecasts.
"We expect a sequentially weaker 4Q. PIOP grew 10 per cent on higher topline; net interest income (NII) grew five per cent while non-interest income was up four per cent (largely investment gains)."
RHB Research adjusted its financial year 2021 forecast earnings on AmBank to include the RM2.83 billion settlement (presumed non-tax deductible).
"We lowered our FY22 forecasts by raising credit cost to 40 basis points (bps) and assume no dividends for FY21-22F on the expectation that management will preserve capital to rebuild CET1 ratio," it said.
RHB Research downgraded its call on AmBank to "Neutral" from "Buy" with a lower target price of RM3.40.