AMMB’s 4QFY22 core profit nudged up 3% QoQ, thanks to management overlay writebacks. However, sequential NIM contracted, loans growth lost traction, and GIL ratio increased. Overall, results exceeded expectations and hence, we raise FY23-24 profit forecasts by 4-9%. We still find the stock’s risk-reward profile to be balance. Maintain HOLD but with a higher GGM-TP of RM3.80 (from RM3.30), based on 0.71x FY23 P/B.

Above expectations. Stripping away net modification gains/losses, global settlement, goodwill & investment in associate impairment, AMMB posted 4QFY22 core profit of RM395m (+3% QoQ, +9-fold YoY), bringing FY22 total to RM1.4bn (+39%). This was above estimates, making up 107-112% of our and consensus full-year forecasts; key variance came from lower-than-expected loan loss provision and effective tax rate.

Dividend. Reinstated and proposed final DPS of 5.0sen (4QFY21 & FY22: None). Ex date TBD later.

QoQ. Core net profit increased 3%, thanks to management overlay writebacks, which more than offset negative Jaws (total income -3% vs opex +5%). We saw net interest margin (NIM) contracted 2bp and non-interest income (NOII) falling 14% due to weak fees and investment-related losses.

YoY. Again, management overlay writebacks, helped to core earnings to spike 9-fold, despite negative Jaws (opex growth outpaced revenue by 4ppt).

YTD. The 39% jump in core bottom-line came on the back of lower loan loss provision (-64%), which more than compensate the soft total income (-3%) as NOII decreased 15% (weak insurance performance and lower investment-related gains).

Other key trends. Loans and deposits growth lost traction to +4.6% YoY (3QFY22: +6.6%) and +1.9% YoY (3QFY22: +4.8%) respectively. In turn, loan-to-deposit ratio (LDR) was sequentially up to 2ppt to 98%. As for asset quality, gross impaired loans (GIL) ratio rose 5bp QoQ to 1.40% due to still elevated NPL formation.

Outlook. NIM is seen to expand sequentially, following May-22’s OPR hike. However, the magnitude could be capped by downward normalization of CASA mix. That said, loans growth is expected to chug along for now, considering economic recovery. On a separate note, GIL ratio is likely to creep upwards but we are not overly concerned as AMMB has already made heavy pre-emptive provisioning in FY21-22 to cushion this impact. Moreover, FY23 NCC assumption pencilled in by both us and consensus are still fairly elevated (above the normalized run-rate but below FY21-22’s level).

Forecast. Following 4QFY22 results beat coupled with lower NCC guidance, we raise FY23-24 net profit estimates by 4-9%.

Maintain HOLD but with a higher GGM-TP of RM3.80 (from RM3.30), after raising our profit forecast. This is based on 0.71x FY23 P/B (from 0.62x) with assumptions of 8.8% ROE (from 8.1%), 11.2% COE, and 3.0% LTG. This is slightly above its 5-year mean of 0.68x but below sector average of 0.92x. The premium/discount is warranted given its ROE generation, which is 2ppt/1ppt above/below its 5-year average/industry. Seeing its elevated LDR, it may need to build deposit base quicker (leading to more pricey funding) in order to better support future loans growth. For mid-sized banks, we still prefer RHB (TP: RM7.00) for its stronger CET1 ratio and undemanding valuations.

Source: Hong Leong Investment Bank Research - 1 Jun 2022