AMMB ended FY23 with a 4QFY23 net profit of RM427.9m (+9.2% YoY, -5.5% QoQ),  aided in part by better non-interest income contributions and lower net impairment charges. Cumulative FY23 net profit of RM1.74bn (+15.5% YoY) is slightly ahead of  our and consensus expectations at 104% of full-year numbers, lifted predominantly by lower loan loss and investment-related provisions. We keep earnings estimates unchanged, having already adjusted for better credit costs earlier. With upside to our unchanged dividend-based target price of RM4.20, we raise our call to Trading Buy,  as we are also encouraged by the Group’s operational improvements. On a side note,  a 12.3sen dividend was declared, brining full-year dividend to 18.3sen.

• Total income (continuing operations) for FY23 was higher by +12.4% YoY to  RM4.61bn, driven by strong net interest income growth (+11.0% YoY) as a result of the cumulative policy rate hikes, and a +16.9% YoY increase in non-interest income (fixed income trading gains). Segmentally, wholesale banking recorded  a net recovery of RM46m in FY23 compared to a net charge of RM1.0bn in FY22,  though retail banking saw higher impairments undertaken due to increased forward-looking provisions and delinquency rates. Investment banking and fund  management income fell 7.3% YoY due to weaker financial market conditions.

• Net interest margin (NIM) compressed notably on a sequential basis to 1.84%  (3QFY23: 2.13%) due to pronounced deposit competition and re-pricing, as  effects of the cumulative policy rate hikes on the loan base also dissipated. For the full year FY23, NIM was relatively stable at 2.07% (FY22: 2.05%) however,  as overall improvements in gross yields negated effects of higher cost of funds. The Group’s relatively healthy CASA ratio of 37.4% (3QFY23: 32.2%) is expected  to sustain NIMs at current levels going forward. Management targets to grow its  grow its retail and SME deposit base more aggressively in the coming years.

• Loans growth for the year was a robust +8.5% YoY, with credit expansion  remaining broad-based. The Group has made significant headway in its SME  portfolio (an area of focus in its transformation initiatives), increasing 30% since  FY20. Business-related loans will likely continue to be a key driver for the Group,  sustaining loans growth at a more moderate ~6% going forward.

• Asset quality remains an area to watch with the formation of newly-impaired  loans at levels last seen in FY15 (Figure 2), though this anticipated to have peaked. Total overlay reserves carried forward are now at RM461m, with an additional RM41m charge taken in 4QFY23 for a corporate sector exposure. The  overall provisions should provide adequate buffers against significant deteriorations ahead. Overall gross impaired loans ratio is encouraging at 1.46% (3QFY23: 1.62%), though this may see marginal upticks in the coming quarter  due to seasonality. Loan loss coverage is at 127.7% (3QFY23: 116.7%)

Source: PublicInvest Research - 30 May 2023