A bank that focuses on the SME business. Being the country’s smallest listed banking group by asset size (eighth spot), ABMB has centered its growth on the SME business. Over the years, the company’s strategy of focusing on this niche has paid off well, with ABMB’s SME loan market share growing steadily from 3.4% in FY18 to 5.0% in FY22. In terms of YoY growth rate in SME loan, ABMB has registered above industry growth rate for four consecutive years, making it the largest growth driver. Management aims to be among the top 6 players (from 8th currently) by FY27. Also, given the riskier SME loan profile (but yielding better margin), ABMB made one of the largest pre emptive provisions in the industry during the Covid-19 pandemic, with the group’s loan loss coverage ratio standing at 128% in 2QFY23; we believe the heavy pre-emptive provisions should cushion the impact of a higher GIL ratio, amid the looming economic slowdown.

ACCELER8 2027. In bid to accelerate growth, ABMB has refreshed its business strategy by unveiling a 5-year strategic plan called Acceler8 2027, which expands into new areas beyond SME. Under this plan, ABMB intends to pay more attention to the consumer banking and wealth management businesses, which have more capacity to grow. The group is also targeting young professionals and high net-worth customers in its consumer banking space. Besides, ABMB intends to capture more market share from the fast-growing economic corridors such as Penang and the eastern states, where the group is under-punching. Overall, notwithstanding some pains in the near term (such as a higher cost-to-income ratio), we believe the plan will pay off in the long haul if management plays its cards well.

Grossly oversold; time to rebound. After correcting 9.9% from 52-week high of RM3.93 to RM3.54 yesterday, ABMB is grossly oversold with indicators on the mend. Despite having a more lucrative ROE (10.3% vs peers’ 9%) and attractive cash dividend yield of 6.2%, ABMB is trading on par with the industry P/B average of 0.89x, which we think is still undemanding. Hence, we advocate buying the dip in anticipation of a further oversold rebound. A convincing breakout above RM3.60 should lift prices higher to RM3.74-3.84-4.03 levels. Cut lost at RM3.28.

Source: Hong Leong Investment Bank Research - 14 Feb 2023