AMMB reported another strong set of quarterly results, with 3QFY23 headline net profit coming in at RM452.6m (+12.2% YoY, +4.0% QoQ), underpinned by higher fee income from its debt capital market, corporate finance and treasury businesses. Cumulative 9MFY23 net profit of RM1.31bn (+17.7% YoY) is ahead of our and consensus expectations at 86% and 80% of full-year numbers respectively. While we continue to be wary over the formation of newly-impaired loans, we lift FY23/24/25 estimates by 11.1% on average to account for lower credit costs. The Group currently has total overlay reserves carried forward amounting to RM420m. Our dividend based target price is unchanged at RM4.20 despite the earnings lift as we make slight changes to the terminal growth rate in our assumptions. Our Neutral call is retained.

• Total income (reported) for 9MFY23 was a marginal 1% higher YoY to RM3.58bn, with net interest income growth (+10.3% YoY) mitigating a notable drop in non-interest income contributions (-20.2% YoY). On a continuing operations basis (excluding AmGeneral), total income grew by +10.5% YoY. Segmentally, wholesale banking (+13%), retail banking (+13%) and business baking (+23%) were the key drivers, mitigating the drops in investment banking (-12%) and group funding (-22%) contributions.

• Net interest margin (NIM) inched 1bps higher QoQ to 2.13% (2QFY23: 2.12%), as overall improvements in gross yields (+42bps to 4.49%) negated effects of notably higher cost of funds (+43bps to 2.55%) during the quarter (owing to deposit competition and switching in search of yields). Benefits from the cumulative 100bps overnight policy rate hike is more evident in 9MFY23 NIM improving 15bps to 2.11% (on an underlying basis). The Group’s relatively steady CASA ratio of 32.2% (2QFY23: 32.9%) is expected to sustain NIMs at current levels going forward, though management has also cautioned that sector liquidity is tightening.

• Loans growth remained at a relatively healthy +5.9% YoY as at 3QFY23, with credit expansion still relatively broad-based. Business-related loans continue to be a key driver, though expected moderation in economic activity going forward is expected to see industry loans growth slow to between 4% and 5% (2022: +5.9%), similarly AMMB’s.

• Asset quality is still a point of concern, with the formation of newly-impaired loans YTD at levels last seen in FY15 (Figure 2). 3QFY23 net provision charge of RM149m includes RM103m in forward looking provisions meanwhile. Total overlay reserves carried forward remain relatively healthy at RM420m however (retail: RM363m, wholesale: RM57m), likely able to mitigate significant deteriorations ahead. Overall gross impaired loans ratio is 1.62% (2QFY23: 1.52%) while loan loss coverage is 116.7% (2QFY23: 122.6%).

Source: PublicInvest Research - 24 Feb 2023