9MFY22 net earnings of RM469.8m (+52%) came above expectations due to continuing improvements in provisioning. The group’s gains in asset quality will ease its books and regain market confidence in the group’s sustainability. The value unlocked from the disposal of its stockbroking unit could drive earnings further in its SME growth strategies. Maintain OP with a higher TP of RM3.85 (from RM3.60) as we roll over our valuation base year. It is still one of our Top Picks for 1QCY22 for its solid fundamentals relative to larger peers.

9MFY21 better than expected. 9MFY22 net profit of RM496.8m was better than expected, making up 93%/96% of our/consensus full-year estimate. While the continued NIMs expansion was a surprise (mainly due to one-off items), the positive deviation was mainly due to significantly less provisions than expected. This also prompted management to update their credit cost guidance to <55bps (from <75bps). No dividend was declared, as expected given the group pays its dividends bi-annually.

YoY, 9MFY22 total income inched to RM1.42b (+3%) as NII gained 11% on the back of a larger loans base (+3%) and better annualised NIMs (2.60%, +25bps). Meanwhile, this was offset by NOII diminishing (-21%) from poorer treasury and investment gains. Higher operating expense came in higher (+6%) but these are in relation to the ongoing divestment of the group’s stockbroking business. On the flip side, provisions narrowed by 63% as asset quality and staging improved, resulting in a much lower credit cost of 44bps (- 78bps). All in, 9MFY22 PATAMI reported at RM469.8m (+52%).

QoQ, 3QFY22 total income rose by 6% due to the same abovementioned reasons. Notably, NIMs saw a strong sequential improvement (2.76%, +24bps) thanks to reversals charged, though we reckon this will normalise in the coming period. Cost-wise, a 10% increase in opex was offset by a 56% decline in quarterly impairments. No thanks to higher effective taxes booked by prosperity tax, 3QFY22 earnings of RM151.0m fell by 13%.

Briefing’s highlights. Overall, management remains confident with its earnings delivery as concerns on asset quality wane progressively. The group’s TRA mix now only make up of 21% of its loan books (RM9.3b in Feb 2022, from RM14.5b in Dec 2021). Given that most concerns may have been overbooked, the group trims its credit cost guidance from <75bps to <55bps for FY22. Meanwhile, writebacks will continue to be an eventuality for the upcoming periods. Other guidances remain unchanged. In the near future, the completion of the group’s sale of its stockbroking business would help to accelerate its loans acquisition strategies against potential easing of NIMs as the competition in the low interest rate environment thickens.

Post results, we raise our FY22E/FY23E earnings by ~14%/8%, indicating our second consecutive quarter of lowering our provisioning expectations. Pegging the same 40% dividend payout on our increased earnings, we raise our full-year payments from 13.0 sen/15.0 sen to 15.0 sen/17.0 sen.

Maintain OUTPERFORM with a higher TP of RM3.85 (from RM3.60). In addition to the higher earnings, we also roll over our valuation base year to CY23E with an estimated BVPS of RM4.72. Our GGM-derived PBV of 0.82x remains unchanged (within mean). We like the stock as its high SME mix allows it to tap more meaningfully into economic reopening plays. Additionally, it commands fundamentals comparable to its large cap peers with solid dividend yields to match. ABMB is one of our Top Picks for 1QCY22.

Source: Kenanga Research - 1 Mar 2022