AMMB Holdings started off the new financial year on stronger footing, with a 1QFY25 net profit of RM500.2m (+32.2% YoY, +5.0% QoQ) reported. Slightly ahead of our and consensus estimates at 28% of full-year forecasts, the discrepancy is largely on account of notably lower provisions (-93.6% YoY, -39.6% QoQ) due in part to write-backs, as improvements in NIMs also helped. Of some concern is the still-elevated incidences of newly-impaired loans, though tempered by better recoveries. We continue to note some encouraging developments in its expected numbers going forward nonetheless – improvements in net credit costs despite recent worries, and likely margin expansions. We remain encouraged over AMMB’s long-term prospects, reflected by these steady improvements on the operational front as the Group embarks on a new strategic journey under its Winning Together (WT29) plans. Our earnings estimates are left unchanged though we raise our dividend-based TP further to RM5.30 as we make adjustments to our valuation variables (i.e. risk premiums). We retain our Trading Buy call, with banking-related stocks attracting strong investor interest in recent times.

• Total income (continuing operations) for 1QFY25 inched higher by 2.0%YoY to RM1.18bn, as a ~6% YoY improvement in net interest income due tomargin expansions managed to mitigate a ~7% YoY drop in non-interestincome (NoII) due to lower trading and securities gains. By segment, businessbanking (+18% YoY) and retail banking (+2.0% YoY) drove gains as wholesalebanking (-20% YoY) weighed.
• Net interest margin (NIM) improved by 10bps QoQ to 1.89% in 1QFY25 (4Q:1.79%), due to lower cost of funds as asset yields remained stable (Figure 1).Steadier asset yields (on improved and targeted loans growth) and relativelyhealthy CASA ratio of >30% should see NIMs at ~1.85% going forward.
• Loans growth remained subdued at +2.9% YoY in 1QFY25, with growthcontinuing to come from business banking (+17% YoY) amid repayments inwholesale banking (-10% YoY). Sector-wise (Table 1), growth is underpinnedby exposures to wholesale/retail trade (+7.4% YoY) and finance/realestate/business services (+14.9%), as management eases off on building upthe mortgage book due to limited uplifts on margins.
• Asset quality improvements are encouraging, with management (confidentenough and) continuing to make reversals on past provisions during thequarter – forward looking (RM104m, 4QFY24: RM68m), despite formation ofnewly impaired loans remaining high (+RM540m) during the quarter. Totaloverlay reserves carried forward is slightly higher at RM541m, with RM39madded on during the quarter. Gross impaired loans ratio is 1.70% (4QFY24:1.67%), with loan loss coverage slightly lower at 107.6% (4QFY24: 109.5%).

Source: PublicInvest Research - 21 Aug 2024