AMBANK: Better earnings ahead

Stronger QoQ earnings anticipated. Despite recent price recovery from ANZ's share disposal overhang, we still view AMBANK's risk-reward profile favourably. We anticipate a notable QoQ profit growth in its upcoming 4QFY24 results, potentially returning to its quarterly run-rate of RM400m. This growth is anchored by the anticipation of downward normalization in the group’s net credit costs. It is worth noting that AMBANK’s net credit cost recorded a surge of 134 basis points in 3QFY24 from 17.3bp in 2QFY24. The increase was mainly due to the higher loan loss provisions as overlays for the retail franchise; this resulted in the loan loss coverage for the retail franchise being raised to 100%. With the allowances made for bad loans being deemed adequate thus far, we anticipate a normalization of net credit costs to 30-35bp in 4QFY24. This reduction in net credit costs is poised to bolster the group's earnings QoQ, despite potential softness in loans and non-interest income during the period.

Palatable valuation. At RM4.22, AMBANK is trading at an undemanding PB of 0.74x (16% discount against the industry's 5-year mean of 0.89x), with an attractive dividend yield of 4.9%. HLIB currently has a BUY call on AMBANK with a TP of RM4.60, based on a P/B ratio of 0.74x at CY25 earnings. In addition to the potential for meaningful sequential profit growth in the next quarter, the adoption of the foundation internal rating-based (FIRB) model possibly in FY25 could help elevate its CET1 ratio to over 14% from the current 13.4% (without transitional arrangements), creating scope for a larger dividend payout in the future.

Pending breakout. After rebounding from the RM4.09-4.19 gap, AMBANK is currently poised for a potential breakout above its immediate resistance at RM4.27. A successful breach of this hurdle would signal increased momentum, propelling the price towards RM4.30-4.45-4.58 levels. Cut loss at RM3.99.
Collection range: RM4.18-4.20-4.22

Upside targets: RM4.45-4.58-4.68

Cut loss: RM3.99

Source: Hong Leong Investment Bank Research - 5 Apr 2024