AMMB Holdings reported another sequentially stronger 3QFY24 net profit of RM543.4m (+22.3% YoY, +15.7% QoQ), though this was distorted by various oneoff items – RM111.9m impairment of intangible assets, RM80.0m charge for restructuring expenses and RM537.6m in tax credits. Of notable concern is a huge RM328.2m in additional credit impairment overlay undertaken, reflective of asset quality concerns which we had flagged previously, though we reckon management had also taken this liberty considering the tax credit buffer. Cumulative 9MFY24 core net profit of RM1.32bn (-0.2% YoY) is within expectations at 75% and 76% of our and consensus full-year estimates respectively. We remain encouraged over AMMB’s long-term prospects, reflected by steady improvements made on the operational front though we trim FY24-FY26 estimates by ~5% on average as we input higher credit costs We also cut our call to Neutral as AMMB’s current share price has exceeded our dividend-based target price of RM4.20.

• Total income (continuing operations) for 9MFY24 fell 2.0% YoY to RM3.48bn as an 8.7% YoY drop in net interest income (NII) to RM2.48bn due to margin compressions was offset by a 19.3% YoY increase in non-interest income (NoII) to RM996m due to higher fee-based income, investment income and trading gains.

• Net interest margin (NIM) weakened slightly to 1.79% (2QFY24: 1.82%) with a re-pricing in its deposits lifting funding costs (3.29%, 2QFY24: 3.24%) though steadier asset yields (4.88%, 2QFY24: 4.87%) helped mitigate. The Group’s CASA ratio of 33.7% coupled with less aggressive rate competition (in both loans and deposits) should see NIMs range between 1.8% 1.9% going forward.

• Loans growth was encouraging, notably in the business (+5% YTD) and retail banking (+3% YTD) spaces but which was offset by a large repayment in wholesale banking (-12% YTD). Sector-wise, growth is underpinned by exposures to wholesale/retail trade (+24.2% YoY), finance/real estate/business services (+5.6%), mortgage (+6.8%) and auto loans (+6.3%). Management continues to see FY24 loans growth at a modest +4%.

• Asset quality. Management has taken the opportunity from the RM537.6m tax credit to make a further RM328.2m in credit impairment overlay, in addition to various other one-off charges. While a prudent and welcome move, we are also wary on the indications on its asset quality, partly reflected in the elevated occurrences of newly-impaired loans (Figure 2). Overall gross impaired loans ratio is slightly weaker at 1.60% (2QFY24: 1.65%) though loan loss coverage is higher at 110.7% (2QFY24: 109.2%).

Source: PublicInvest Research - 27 Feb 2024