We hosted a meeting with AMBANK’s CFO, Mr. Jamie Ling for updates and came out reassured of the group’s near-term prospects. The group is closely eyeing its RM350m/quarter PATAMI target in light of the recent prosperity tax and interest waiver from Financial Management and Resilience Programme (URUS). That said, the group is still well positioned to benefit from the national economic recovery with a higher retail deposit mix helping to keep cost of funds optimised. Maintain MP and GGM-derived PBV TP of RM3.15.

One-off prosperity tax could leave a RM130m-RM140m mark, which management shared would be derived from its main business units of retail banking, business and wholesale banking and insurance. This guidance is premised on the group achieving its RM350m/quarter PATAMI target for FY22.

URUS impact likely marginal. Regarding the interest waiver propositioned for the B50 accounts under moratorium, management anticipates RM40m-RM50m cost to be reflected in 3QFY22 (Oct-Dec). This only makes up c.5% of the group’s expected quarterly top-line (RM1.1b/quarter). We anticipate the period to also be cushioned by stronger NII, thanks to a more noticeable economic reopening and recovery in loan demand. Management opines this would come mainly from mortgage and SME segments.

Provisions should ease up. The group will continue to be cautious with its provisioning needs, having accumulated overlays of RM158m so far with total provisions of RM745m booked in FY21. While it is not expected for the coming quarter’s impairments to be as significant as 1QFY22 (RM199m), it will likely include some prudent consideration with regards to some oil & gas accounts. In relation to its Targeted Repayment Assistance (TRA), the group’s mix has improved to <30% (from 32% in Aug 2021) with some corporate account released, with a stable proportion not demanding further asset quality management.

A bigger share of retail deposits. Previously, management aspired to grow its retail deposits proportion to reduce dependency on large corporate accounts. Currently, retail makes up c.45% of total deposits (from FY20: c.35%) which allows greater fluidity. This should also keep the group’s cost of funds optimised should further repricing be required.

Post meeting, we leave our earnings assumptions unchanged. Our existing estimates are conservative against management’s expectations, mainly in terms of loans growth estimates for the group (3.4% vs. management’s ~4% in line with GDP) as we believe the larger banks could be more favoured by customers in such period. We also anticipate an erosion in deposits (-2.5%) as customers withdraw and indulge in pent-up spending, especially in 2HFY22. That said, our opex assumption is closely in line with management’s RM515m/quarter.

While management is not committing on the dividend front, we continue to expect payments to be subtle at c.25% (below historical average of 30-40%) in the near-term, hindered by the abovementioned one-off items. The group could also be favouring capital rebalancing, hoping to close FY22 with a CET-1 ratio of above 12%.

Maintain MARKET PERFORM and TP of RM3.15. Our TP is based on an unchanged FY22E GGM-derived PBV of 0.62x (1.0SD below 5-year mean). At current price points, we believe the risk-to-reward for AMBANK is well balanced. As the group moves past the Global Settlement and kitchen sinking saga, investors may relook the stock as it regains fundamental stability. That said, it currently offers less comparable returns in relation to its large-cap peers but could be well appreciated if it builds on its strong asset quality (GIL <2%) and registers strong recovery traction.

Source: Kenanga Research - 10 Nov 2021