1QFY22 net profit of RM146.0m (+40% YoY) came broadly within expectations with potentially higher provisioning in coming quarters looking to normalise earnings. Guidances are mostly maintained as management is confident the subsequent quarters can be well managed despite near-term economic challenges. We see key risks in a slower-than-expected reopening of the economy and protracted movement controls affecting the SME space. Maintain MP with a higher GGM-derived PBV TP of RM2.40 (from RM2.20).

1QFY22 within expectations. 1QFY22 net profit of RM146.0m made up 30%/33% of our/consensus expectations, which we deem to be broadly within as 2QFY22/3QCY21 could be laden with provisioning in light of the new blanket moratorium and soft economic conditions affecting asset quality. No dividends were declared, as expected.

YoY, 1QFY22 total income rose by 15% to RM483.0m backed by stronger NII (+13%) and NOII (+20%). This was lifted by better NIMs (2.59%, +24 bps) on more optimised funds together with better wealth management and trading income. Though operating expenses increased by 4% due to higher personnel cost, CIR improved to 40.0% (-4.3ppt) on the back of the higher top-line. Impairment was flattish YoY as management believe its provisioning needs are currently adequate, sitting on a total management overlay of RM340m. Our computed annualised credit cost stands at 87 bps. All in, 1QFY21 net earnings hit RM146.0m (+40%). On another note, CASA-to-deposit continued to reach new highs at 49.4% (+11.8ppt).

QoQ, 1QFY22 total income increased by 8% due to the same abovementioned reasons sequentially. Notably, operating expenses fell by 17% due to a more restrained operating environment while loan provisioning was reduced by 30% thanks to pre-emptive bookings in the previous quarter. This translates to a 192% gain in net profits.

Key briefing highlights. Management appears optimistic for its FY22, having made progress in de-risking from some sensitive sectors and managing its provisions well, albeit with further measures to come and some normalisation in NIMs. The group remains ambitious with its goals within the business banking space to double its SME share by FY26. As of 1QFY22, SMEs make up 45% of the group’s loans book. We reckon the positive tone could be attributed to the group’s March FY-end which allows more time for vaccination efforts to translate to better economic results. With regards to its TRA program, Aug 2021’s outstanding portion comprises of 32% of its loan book (16% in May 2021) aggravated by the PEMULIH’s moratorium coverage which includes micro-SMEs. That said, management is not overly concerned that this is a reflection of severe degrading of asset quality as applicants also consist of non-risky accounts seeking better short-term liquidity. FY22 guidances are maintained, with a more committed 45% CIR target.

Post results, our FY22E earnings are tweaked slightly from model updates.

Maintain MP with a higher TP of RM2.40 (from RM2.20). Our higher TP is based on slightly better ROE assumptions (at 8.0% from 7.75%) inputted to our GGM-derived PBV, which now stands at 0.54x CY22E PBV (from 0.50x, 1.5SD below mean). We believe the minor upgrade in ROE is fair given that the group’s well-managed foundations in the current climate, we also believe the risk-to-reward for ABMB is also well-balanced at current price points. Additionally, a higher SME mix could appear riskier to investors given ongoing economic concerns and if economic reopening sees further setbacks.

Source: Kenanga Research - 30 Aug 2021