Banking Stocks Rally Resumed?

If we are worried that the broad market rally may not have continued, we can take comfort that the Finance index has just broken above the wedge formation (CDEF) at 16500. This breakout means that the banking stocks rally is likely to resume.


Chart 1: Finance's daily chart as at Jun 5, 2017 (Source: Shareinvestors.com)

We can position ourselves in some of the laggards or recently beaten down banking stocks and wait for them to re-join the rally. These include AFG, RHBBANK and AMBANK. They are mostly trading near their uptrend lines as well as supported by strong horizontal lines. The reward to risk for selecting these stocks is in your favor as compared to buying into CIMB or Maybank.


Chart 2: AFG's daily chart as at Jun 5, 2017 (Source: Shareinvestors.com)


Chart 3: RHBBANK's daily chart as at Jun 5, 2017 (Source: Shareinvestors.com)


Chart 4; AMBANK's daily chart as at Jun 5, 2017 (Source: Shareinvestors.com)

AMBANK: Broke Above Its Downtrend Line

In early March, I wrote again about AMBANK testing its downtrend line (here). On April 21, AMBANK finally broke above its long-term downtrend line, RR at RM5.00. See Chart 1 below.


Chart 1: AMBANK's weekly chart as at April 27, 2017_12.30 (Source: Malaysiastock.biz)

If you look closely, there is a minor resistance at the recent high of RM5.02 that capped the price rise for 4-5 weeks. The upside breakout of the long-term downtrend line and the recent high of RM5.02 set this stock free. It soared immediately to the psychological level of RM5.50 before correction set in.


Chart 2: AMBANK's daily chart as at April 27, 2017_12.30 (Source: Malaysiastock.biz)

Based on my previous financial analysis and the current technical breakout, AMBANK is a good stock to invest for long term.

AMBANK: Testing Its Downtrend Line

Results Update

AMBANK's result for QE31/12/2016 (3Q17) was released on February 24. That quarter saw AMBANK's net profit dropped 15.4% q-o-q but rose 4.3% y-o-y to RM313 million. Revenue dropped 5.8% q-o-q or 6.5% y-o-y to RM1978 million.


Table: AMBANK's last 8 quarterly results

PBT dropped q-o-q mainly due to lower net income from Islamic Banking business (RM8.5 million), other operating income (RM122.3 million) and, lower recoveries of RM14.4 million.

This was partially offset by higher net interest income (RM21.4 million), share in results of associates & joint ventures (RM9.4 million), higher writeback for impairment on loans, advances and financing (RM41.4 million), lower other operating expenses (RM6.6 million) and higher writeback of provision for commitments and contingencies (RM3.9 million).

Graph 1: AMBANK's last 22 quarterly results

Notwithstanding the dip in its earnings for QE31/12/2016, AMBANK's annualized earning for FY2017 is expected to be slightly higher than FY2016.


Graph 2: AMBANK's last 12 yearly results

Valuation

AMBANK (closed at RM4.99 yesterday) is now trading at a trailing PER of 11.9x (based on last 4 quarters' EPS of 42 sen). At this PER, AMBANK is deemed fairly valued.

Technical Outlook

AMBANK is now testing its intermediate downtrend line, RR at RM5.00. If it can break above this line, AMBANK could begin its next upleg.


Chart 1: AMBANK's weekly chart as at Mar 7, 2017 (Source: MalaysiaStock.Biz)

AMBANK dropped from a high of RM8.00 in 2013 to a recent low of RM4.00. It tested its long-term uptrend line support at RM4.00 before recovery.

  
Chart 2: AMBANK's monthly chart as at Mar 7, 2017 (Source: ShareInvestor.com)

Conclusion

Based on satisfactory financial performance & tentative signs of earning recovery, AMBANK could be a good stock for a recovery play.

Note:
I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

AMBANK: Waiting For The Tide To Turn

Background

AMMB Holdings Berhad or also known as AMBANK is a financial services group in Malaysia whose core businesses are retail banking, wholesale banking, islamic banking, and life and general insurance.

Historical Financial Performance

From the graph below, we can see that AMBANK enjoyed strong growth after the Global Financial Crisis ended in 2009. Its earning peaked in 2015.


Graph 1: AMBANK's last 10 years' Financial Performance

The decline in earnings could have bottomed. The past 6 months' results shows a slight uptick!


Graph 2: AMBANK's Financial Performance for the last 10 half-years

Recent Financial Result

Looking at the table below, we can see that the last 2 quarters' earnings (QE30/9/2016 & QE30/6/2016) are better than the earnings from the immediate preceding quarters (QE31/3/2016 & QE31/12/2015). There is a good chance that the earnings would continue to improve going forward.


Table: AMBANK's last 8 quarterly result


Graph 3: AMBANK's last 12 quarterly result

Valuation

AMBANK (closed at RM4.18 yesterday) is now trading at a PER of 10x (based on last 4 quarters' EPS of 41.72 sen). At this PER, AMBANK is deemed fairly valued.

Technical Outlook

AMBANK has lost about 50% of its 2013 high of RM8.00 to its recent low of RM4.00. It is now trading not very far from the support of its long-term uptrend line at RM3.50. In fact, the stock has strong support from the cluster of horizontal lines between RM4.00-4.50.


Chart 1: AMBANK's monthly chart as at Dec 8, 2016_10.30 (Source: ShareInvestor)

The weekly chart shows AMBANK had been hoovering around the RM4.20 level for more than a year. Due to poor sentiment, it broke thru that support and tested the support at the horizontal line at RM4.00. It even broke the RM4.00 mark briefly in late October before recovery. The pattern (ABCD) we see is similar to a falling wedge where a breakout to the upside at RM4.30 could signal the end of its 3 years' bear run. Watch out for that!


Chart 2: AMBANK's weekly chart as at Dec 8, 2016_10.30 (Source: ShareInvestor)
 
Conclusion

Based on possible recovery in earning and fair valuation, AMBANK could be a good stock to consider for a recovery play. However it must be noted that the stock is still in a downtrend and recovery would only begin if it can convincingly break above the RM4.30 mark.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.