We hosted a meeting with ABMB’s Head of Investor Relations, Mr. Tan Hong Ian, and came out optimistic on the group’s near-term trajectory. Loans growth is expected to be favourable in the near-term while riding on well-positioned strategies. We reckon the group could deliver strong earnings and dividend surprises should recovery be better than expected. Maintain OP with a higher TP of RM3.60 (from RM3.25) on better GGM inputs. It is one of our Top Picks for 1QCY22.

Well anticipated 2022 loans performance. We spotted the group for its high exposure to the SME segment, which constitutes >30% of its books. In line with the economic recovery, this segment is primed to benefit as business loans demand improves on reinvigorated working capital needs. Expansionary-driven demand could materialise if the business landscape turns more favourable than expected. Meanwhile, household loans may be further fuelled as income prospects become more sustainable in 2HCY22. At present, our FY23E loans growth projection of 5% is in line with our CY22 industry-wide expectation.

Sale of stockbroking unit an overall boon. In December 2021, the group announced that it is disposing its stockbroking business to Philip Futures for an expected consideration of c.RM300m. The segment had previously contributed <3% to group PBT and its disposal is not expected to translate to meaningful income loss or cost efficiency gains. Although it might not lead to significant gains, the additional capital could aid the group’s strategies in its key growth areas (i.e. SMEs). We reckon that a potential acceleration in loans growth from the abovementioned better economic environment could translate to some spill-over in special dividends from the excess capital.

NIMs to benefit from OPR hike. In anticipation of an upcoming rate hike in 2HCY22, management guided that we could see an increase of 3-4 bps to NIMs, leveraging on the group’s mortgage portfolio. At present, the group has the highest CASA mix amongst its peers (c.50% vs 32%) which may trigger a migration to higher yielding fixed deposit products. However, it is likely that consumers may still prefer cash liquidity given the still uncertain economic landscape with lingering worries of new Covid-19 variants. This would help to keep interest spreads buoyant for the time being.

Credit cost would be lumpier in 2HFY22 but then ease. Previously, the group has updated its FY22 credit cost target from <90 bps to <75 bps on the back of 1HFY22 annualised credit cost of <60 bps. Management is still keeping a prudent eye on certain high-risk accounts in its TRA books which may call for further provisioning. At the meantime, management shared that its Alliance One Accounts make up 20% (or RM5b) of its consumer books, which it is comfortable with at this moment as current economic landscape should improve the quality of these accounts.

(refer to the overleaf for comments on the Sustainability Strategy Briefing)

Post update, we recalibrate our applied exposure of the one-off prosperity tax from CY22 to FY22 on further clarity on its provisioning. This results in earnings adjustments of -8%/+6% in FY22E/FY23E Core PATAMI.

Maintain OUTPERFORM with a higher TP of RM3.60 (from RM3.25). Given the improved sentiment on the stock given its strong economic recovery angle, we recalibrate our GGM assumptions, namely our beta inputs. Our newly applied 0.82x (from 0.73x) CY22E PBV is 0.5SD below the group’s 5-year mean. The group’s medium-term fundamentals appear to be comparable, if not better than some of its larger cap peers. On the flipside, our dividend payout assumptions are rather conservative (at 40%, below pre-Covid levels of c.50%). Assuming we are out of the woods, it is possible for the stock to deliver positive earnings surprises in the coming years.

Source: Kenanga Research - 20 Jan 2022