KUALA LUMPUR (Aug 21): Shares of AMMB Holdings Bhd (KL:AMBANK) on Wednesday surged to its highest in more than decade as investors and analysts cheered better-than-expected results by the country’s sixth-largest bank by assets.

AMMB rose by as much as 20 sen or 4% to RM5.21. The stock closed at RM5.11, its highest since December 2013, giving the company a market capitalisation of RM16.94 billion. Trading volume totalled 19.77 million shares, more than triple the 200-day moving average.

While net profit for the first quarter ended June 30, 2024 (1QFY2025) was just slightly ahead and made up 28% of consensus full-year forecasts, analysts took note of the jump in net interest margin.

“We continue to note some encouraging developments in its expected numbers going forward,” including improvements in net credit costs and likely margin expansions, said Public Investment Bank which kept the stock on ‘trading buy’ call.

The rating means that the stock return is expected to exceed a relevant benchmark’s return by 5% or more over the next three months but the underlying fundamentals are not strong enough to warrant an ‘outperform’ call.

Still bullish

Shares of AMMB have climbed more than 27% year to date. As direct proxies to economic growth, Malaysian banking stocks have staged a broad rally following release of stronger-than-expected gross domestic product data.

Analysts also remained bullish, with 14 out of 15 research houses having ‘buy’ calls on AMMB and only one ‘sell’ call. The consensus 12-month target price is RM5.43, according to Bloomberg, implying a potential return of 6.3% from its last price.

In particular, analysts took note of the jump in AMMB’s net interest margin (NIM) — a measure of profitability from interest charged on loans after paying returns on deposits — which may further improve in coming quarters as deposit competition eases.

“We see NIM widening slightly next quarter as management further optimizes its funding cost” while competition for fixed deposits remains “benign,” said Hong Leong Investment Bank.

AMMB’s NIM expanded 10 basis points quarter-on-quarter and 13 basis points on a year-on-year basis to 1.89% in 1QFY2025. That compares with the company’s own target of raising NIM to 1.9% for the entire FY2025.

Signs of easing competition

“There is now convincing evidence of sustained lesser competition in the fixed deposit segment, with promotion rates normalizing” towards the 3.50%, said CIMB Securities.

Larger banks now offer one-year promotion rates at 3.6% compared with 3.9% early this year and a peak of 4.2% in 2023 and only some foreign banks and smaller Islamic and development banks market their fixed deposit rates at 3.8% or above, the house noted.

Further, credit costs — a measure of provisions for potential losses on loans and write off of bad loans — was also softer than expected in 1QFY2025 at only 11 basis points compared with the company’s own target of up to 35 basis points for FY2025.

AMMB is “actively working on recoveries from large defaulted accounts, which could provide some upside to credit costs,” with an overlay balance of RM541 million, or about 27% of total provisions, said RHB Investment Bank.