AMMB Holdings (AMMB) started off 1QFY24 on a weaker note, with a reported profit of RM378.4m (-7.8% YoY, -11.6% QoQ) hampered by a notable rise in loan loss provisions (+188.9% YoY, +256.7% QoQ). The Group also undertook forward-looking charges amounting to RM101.7m, though partially offset by reversal of overlays amounting to RM99.6m. Missing estimates slightly at only 21% and 22% of our and consensus full-year expectations respectively, we retain our earnings estimates on account of its still-steady operational improvements however. The share price has taken a knock overnight (-9sen), presumably in reaction to the “poorer” set of results reported, and in missing expectations. We remain encouraged over AMMB’s prospect despite this apparent setback, and retain our Trading Buy call. Our dividend-based target price of RM4.20 is unchanged.

• Total income (continuing operations) for 1QFY24 was higher by +4.2% YoY to RM1.20bn, driven by strong non-interest income contributions (+36.0% YoY) as a result of trading gains in securities, higher fees from the investment and business banking businesses, and the asset management business. Net interest income slipped 6.3% YoY due largely to margin compressions amid intense deposit competition. By division, wholesale banking (+33.7% YoY) made the most significant headway, driven by the trading gains mentioned. Net recoveries also reported an uptick, which balanced the rise in forward-looking charges.

• Net interest margin (NIM) compressed further on a sequential basis to 1.84% (4QFY23: 1.84%) due to pronounced deposit competition though this is anticipated to moderate in the coming quarters. The Group’s previously healthy CASA ratio has taken a slight knock to 30.4% (4QFY23: 37.4%) as depositors switched to fixed deposits (FD) amid the high interest rate environment in search of yields. To note, FD balances rose 11.2% to RM90.7bn while current/savings account (CASA) balances fell 18.9% to RM39.6bn.

• Loans growth slipped 1.0% QoQ, with lower activities seen in the wholesale (- 4.2% year-to-date (YTD)) and business (-3.7% YTD) banking segments, though offset by consistent growth in the retail banking (+1.3% YTD) business. In light of increasingly challenging operating conditions, management has indicated a more circumspect loans growth target of ~5%.

• Asset quality is the headline grabber this 1QFY24, with a relatively huge and slightly disconcerting +122% QoQ jump in impairments (excluding overlays and forward looking provisions) to RM188m. Retail and business banking segments were primary culprits. Another RM102m in forward-looking provisions were also undertaken meanwhile, though offset by a reversal in overlays amounting to RM100m. Overall gross impaired loans ratio has deteriorated to 1.66% (4QFY23: 1.46%) with loan loss coverage also weaker 115.6% (4QFY23: 127.7%).

Source: PublicInvest Research - 22 Aug 2023