KUALA LUMPUR (Aug 22): Analysts have kept “buy” calls on AMMB Holdings Bhd (AmBank) although the group’s financial results for the first quarter ended June 30, 2023 (1QFY2024) were below expectations due to higher-than-expected loan impairment allowances.

In their results review note released on Tuesday (Aug 22), analysts from RHB Investment Bank (RHB IB) and Hong Leong Investment Bank (HLIB) Research said they believe AmBank’s net interest margin (NIM) is stabilising with waning fixed deposit (FD) competition. They also expressed a liking towards AmBank for its undemanding valuation and talked of a larger dividend payout from the adoption of the foundation internal ratings-based approach (FIRB).

RHB IB said AmBank’s NIM — which reduced to 1.76% in 1QFY2024, down eight basis points quarter-on-quarter and 36 basis points year-on-year (y-o-y) — will stabilise at current levels.

The firm opined that further lumpy provisions are unlikely, as most of AmBank’s loans are collateralised and its loan loss coverage ratio remains sound at 116%.

“The group also wrote back RM100 million of its management overlays, with a balance of RM362 million remaining (circa 17% of total provisions),” RHB IB said.

However, RHB IB revised AmBank’s FY2024 loans growth target to 4% to 5% from 5% to 6%, and lowered AmBank’s FY2024 to FY2026 earnings forecasts by 12% to 13% in alignment with the updated guidance.

“Our target price (TP) is lowered to RM4.20 as a result, and includes a 0% environmental, social and governance (ESG) premium or discount,” the firm said.

“We continue to like AmBank for its inexpensive valuation and transparent guidance, while the likely disposal of AmMetLife is a potential catalyst given the possibility of special dividends.”

In terms of AmBank’s guidance, RHB IB said AmBank's management is expecting FY2024 profit after tax and minority interests of circa RM1.6 billion.

“Against the backdrop of softer loan growth and stable-but-muted NIM, operating expense control will be crucial — guidance is for the full-year total to not exceed RM2 billion, or flat y-o-y,” it said.

“The group’s capital rebuilding exercise is now largely done, and it can fully return to its dividend policy of 35% to 40%, with scope for an upside following the adoption of the FIRB, which the group aims to complete in FY2024,” RHB IB added.

Similar to RHB IB, HLIB Research said AmBank’s NIM is set to stabilise from 2QFY2024 onwards, and foresaw that FD from the January to March 2023 cohort to be repriced at lower rates.

“However, Casa (current account savings accounts) substitution to FD may limit the upside,” HLIB Research wrote on its note.

“Separately, credit growth is expected to continue tapering due to the soft macro environment. That said, net credit cost is seen to improve in subsequent quarters given smaller forward looking provisions put in by AmBank.

“Overall, we are not particularly worried about asset quality, since AmBank has already made big provisions to cushion any jump in gross impaired loans ratio,” HLIB Research said.

The firm also cut AmBank’s FY2024 to FY2025 earnings projection by 5% to 8%, lowered its Gordon growth model-derived TP of RM4.20 and concurred that the potential adoption of FIRB in 2024 could create headroom for a larger dividend payout in the future.

According to Bloomberg, besides RHB IB and HLIB Research, five other firms also put “buy”, “outperform” or “accumulate” calls for AmBank on Tuesday. There were another two firms that recommended “hold”.

At the time of writing, AmBank was trading lower five sen or 1.33% to RM3.72, valuing the group at RM12.33 billion.

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