AMMB Holdings (AMMB reported a sequentially stronger quarter, with 2QFY24 net profit coming in at RM469.8m (+10.1% YoY, +24.2% QoQ), with lower loan loss provisions and write-backs providing the lift. Cumulative 1HFY24 net profit of RM848.1m (+1.3% YoY), albeit relatively unchanged vis-à-vis FY23 is within expectations at 48% of our and 49% of consensus full-year estimates. Weakness in net interest income contributions were mitigated by stronger non-interest income growth. The current quarter also saw a further reversal of overlays amounting to RM48m, which helped lower net impairment charges. The coming quarter(s) will see lifts coming from ~RM481m in a tax recoverable amount (due to treatment of exceptional expenses in FY21), though likely to be indirect. We retain our earnings estimates as we consider this one-off in nature. We remain encouraged over AMMB’s long-term prospects, reflected by steady improvements made on the operational front. We maintain our Trading Buy call and dividend-based target price of RM4.20. AMMB’s share price has gained +12.3% since our call upgrade in May 2023.

• Total income (continuing operations) for 1HFY24 was fractionally lower (- 0.2% YoY) at RM2.33bn as compared to last year, weighed by a 7.4% YoY drop in net interest income contributions (NII) due to margin compressions. Noninterest income (NoII) growth of +23.8% YoY from higher fees, trading gains and investment income was insufficient to mitigate.

• Net interest margin (NIM) compression is observed to be moderating, reflected by the sequential gain to 1.82% (1QFY24: 1.76%) as the Group reaped benefits from a better funding mix. CASA ratio improved to 32.2% (1QFY24: 30.4%) as less aggressive rates (on reducing competitive pressures) for its higher-cost fixed deposits (FD) also helped.

• Loans growth was largely unchanged on a YTD basis, though recovering by +1.4% QoQ due to improved activity in the manufacturing (+5.7%) and utilities (+6.2%) sectors. YoY growth of +5.2% is sustained by the wholesale/retail trade business (+16.0%), mortgage (+7.4%) and auto loans (+10.5%) segments. Management now expects FY24 loans growth to be a more modest +4%.

• Asset quality. While the incidence of newly-impaired loans remains relatively (and disconcertingly) elevated this current quarter (Figure 2), management has leeway from the aforementioned tax recoverable amount which it could utilize to offset asset quality challenges ahead. This is in addition to RM314m in total overlay reserves carried forward which it could also write-back. Overall gross impaired loans ratio is slightly better at 1.65% (11QFY24: 1.66%) though loan loss coverage is weaker at 109.2% (1QFY24: 115.6%).

Source: PublicInvest Research - 23 Nov 2023