AMMB’s 2QFY23 headline net profit came in at a commendable RM435.4m (+35.6% YoY, +3.9% QoQ) despite being marred by impairment losses for its discontinued insurance (AmGen) operations. Nonetheless, cumulative 1HFY23 net profit of RM854.6m (+20.8% YoY) is still broadly in line with our and consensus expectations at 56% and 54% of full-year numbers respectively, underpinned by healthy loans growth and margin expansions. We still note with some caution on the formation of newly-impaired loans, though these exposures may be adequately provided for by its macro overlays. We maintain our estimates, with expectations of stronger loans growth, lower credit costs and margin expansions already accounted for. Our target price is raised slightly to RM4.20 as we make adjustments to dividend payout assumptions. We retain our Neutral call however.

• Total income (reported) for 1HFY23 was 1% lower YoY to RM2.35bn, with banking revenue growth (reflected in net interest income, +10.4%) offset by disposal losses of AmGen (reflected in non-interest income, -24.5%) and lower fee income from the investment banking and wealth management businesses. On the latter, the Group recognized a one-off disposal loss of RM49.7m, though the RM286.9m in cash received helped to bump CET1 up by 0.25%.

• Net interest margin (NIM) was unchanged QoQ at 2.12% (1QFY23: 2.12%), as benefits from the rate hike cycle on its deposit base (+17.1bps) were partly negated by re-investments into lower-yielding bonds and securities during the period (reflected by a 8.1bps slippage in wholesale banking margins). CASA ratio was largely unchanged at 32.9% (1QFY23: 32.6%) on a QoQ basis, though lower YTD due to reductions in wholesale banking balances.

• Loans growth was a robust +7.6% YoY in 2QFY23, with credit expansion relatively broad-based. Business-related loans are the major drivers, in line with continued pick-up in economic activity, post-transition to the endemic phase of COVID-19 management.

• Asset quality issues remain a current concern, with the formation of newly impaired loans YTD already nearing FY22, and already exceeding FY21 (Figure 2). 1HFY23 net provision charge of RM266.9m includes RM116.0m impairment of the Kurnia brand, agent relationship and other assets of AmGen. With the additional overlay of RM30m undertaken in 1QFY23, cumulative overlays carried forward remains at RM424.4m (retail: RM363m, business: RM31m, wholesale: RM30m). Overall gross impaired loans ratio is 1.52% (1QFY22: 1.55%) while loan loss coverage is 122.6% (1QFY22: 123.3%).

Source: PublicInvest Research - 1 Dec 2022