Take a look at AmBank's price chart above, what do you see ? Yup, you are right, at current price of RM4.15, the stock is trading closed to its 9 year rock bottom of RM3.90.
Just a few months ago, AmBank was trading at more than RM5.50. Two things caused price to plunge recently :-
(a) the company announced that it will be undertaking a Mutual Separation Scheme of RM125 mil which will be reflected in next quarter result; and
(b) its December 2017 quarterly profit dropped from RM331 mil to RM219 mil. The drop in earning was mostly caused by jump in bad debt which included an RM80 mil provision.
With its excessive focus on short term performance, the market reacted by selling down the stocks big time. In my opinion, this is shortsighted and overdone. For long term investors, it is an opportunity to bargain hunt.
First of all, even though the MSS will depress next quarter earning, it will result in cost saving of RM80 mil per annum in the subsequent years.
(Source : The Star newspaper today)
As for the bad debts, RM50 mil of the RM80 mil has been recovered in January 2018. That will be reflected in next quarter's earning.
The recent sell down of AmBank shares presents great opportunity for long term investors to take position. The stock is currently trading at closed to its nine year low. Downside is limited in view that we are currently not in a crisis situation.
On the other hand, upside is pretty good. As mentioned earlier, the group's next quarter result will be adversely affected by the MSS. Beyond that, earning is expected to normalise. Please refer to Hong Leong Investment Bank and Kenanga's earning forecast below.
(Source : HLIB analyst report dated 1 March 2018)
(Source : Kenanga analyst report dated 1 March 2018. Please note AmBank's year end is March. As such, FY2019 refers to calendar year 2018)