AMMB Holdings reported a more normalized 4QFY24 net profit of RM476.5m (+11.5% YoY, -12.3% QoQ) in the absence of one-off items that distorted the immediate preceding quarter’s reported numbers. Core net profit of RM1.80bn (+1.4% YoY) excluding the various one-of items (RM112m impairment of intangible assets, RM80m charge for restructuring expenses, RM328m credit impairment overlays and RM538m in tax credits) is slightly ahead of our and consensus expectations at 105% and 107% of full-year numbers respectively. We note some encouraging developments in its expected numbers going forward– improvements in net credit costs and likely margin expansions. We remain encouraged over AMMB’s long-term prospects, reflected by these steady improvements on the operational front. Our earnings estimates are left unchanged though we raise our dividend-based TP to RM4.80 as we roll over our base valuation year. We also raise our call to Trading Buy given the share price upside potential.

• Total income (continuing operations) for FY24 slipped 0.6% YoY toRM4.65bn, with a 6.7% YoY drop in net interest income (NII) to RM3.30bn dueto margin compressions offset by a 14.6% YoY increase in non-interest income(NoII) to RM1.34bn. Income from trading gains (+61% YoY to RM113m) wasa major contributor, though unlikely to be replicated going forward.

• Net interest margin (NIM) was stable at 1.79% in 4QFY24 (3Q: 1.79%),having already slumped 29bps for the year, suggesting the trough incompressions are likely to have already been seen. Steadier asset yields (onimproved and targeted loans growth) coupled with the Group’s relativelyhealthy CASA ratio of 37.1% amid less aggressive rate competition should seeNIMs averaging ~1.85% going forward.

• Loans growth was subdued at only +3.0% YoY in FY24, with growth mostlyfrom business banking (+10% YoY) amid repayments in wholesale banking (-6% YoY). Sector-wise, growth is underpinned by exposures to wholesale/retailtrade (+7.7% YoY), finance/real estate/business services (+10.5%) andmortgage (+6.0%) loans. Management anticipates FY25 loans growth at ~5%.

• Asset quality improvement is evident in the RM68m forward-lookingimpairment write-back and RM67m in overlay reversal in 4QFY24, though thisis also against the backdrop of a preemptive RM328m in impairment overlaysundertaken in 3QFY24. Total overlay reserves carried forward has fallen toRM502m, though we expect it to remain sufficient in buffering potential assetquality challenges. Gross impaired loans ratio is higher at 1.67% (3QFY24:1.60%), though loan loss coverage is steadyat 109.5% (3QFY24: 110.7%).

Source: PublicInvest Research - 28 May 2024