FY22 earnings of RM1.50b (+56%) came above expectations due to softer overall effective tax but the 5.0 sen final dividend declared was a miss. AMBANK’s return to grace may not be fully reflected among investors yet, hence, we see buying opportunities for the stock, with its FY23E targets looking to boost the group’s overall market share while keeping margins intact. Maintain OP with a higher GGM-derived TP of RM4.35 (from RM4.10).

FY22 results beat expectations. FY22 PATAMI of RM1.50b exceeded expectations, making up 109%/114% of our/consensus expectations. The positive deviation appears to be due to softer-than-expected effective tax during the 4QFY22 period, granted by tax credits seen in 3QFY22 which cushioned the impact of the prosperity tax. On the flipside, a final dividend of 5.0 sen (11% payout) was declared but this is below our anticipated 9.0 sen (20% payout), below historical rates of 30-40%.

YoY, FY22 total income rose by 3% to RM4.62b as NII (+11%) was lifted by both higher loans (+5%) and NIMs (2.02%, +16 bps) as CASA mix also improved by 5ppt. Meanwhile, NOII (-15%) was affected by poorer investment and trading results against a higher base in FY21. Credit cost saw a drastic improvement at 66bps (-212bps) on better asset quality and also absent the RM1.80b goodwill write-off in 4QFY21. Despite being exposed to the prosperity tax, a total tax credit of RM234m lead core FY22 core PATAMI to RM1.50b (+56%).

QoQ, 4QFY22 NII tapered down by 3% as NIMs were sequentially weaker, as 3QFY22 was boosted by periodic lower funding costs. NOII (-14%) also declined as fee-based revenue streams and investment income were affected by harsher macros. That said, some loan write-backs were penned down from non-defaults, raising operating profit by 115%. However, owing to 3QFY22’s reporting of tax credits against 4QFY22’s normalised tax payments, net earnings ultimately saw a 3% decline.

Briefing highlights. Management appears positive about the group’s prospects for FY23 with total income growth expected to continue its momentum. A higher loans base by 7% is expected, coming from all fronts, although SMEs were one of the key performers for the group. Meanwhile, more digital channels are expected to provide a more seamless experience to customers and could hopefully keep CASA levels lofty, although some churn is expected as further rate hikes take place. At the very least, management hopes for NIMs to linger sustainably at 2.05-2.10%. The group’s repayment assistance accounts only made up 6% (as at 13 May 2022) of its total loans books from 16% (as at 18 Feb 2022). We also do not see much cause of concerns for the remaining accounts with the group also indicating that its risky oil & gas assets have been mostly provisioned. This allows for a lower credit cost target of 35-40 bps. Meanwhile, the disposal of its insurance arm to Liberty Insurance is on track and should unlock sizeable value to the group upon its completion.

Post results, we tweak our FY23E earnings by +3% to account for lower credit cost to align with management’s target. Meanwhile, we introduce our FY24E numbers which projects an 8% earnings growth.

Maintain OUTPERFORM with a higher TP of RM4.35 (from RM4.10). While we leave our GGM-derived CY23E PBV of 0.77x (1.0SD above mean) unchanged, the higher TP came mostly from book value updates following the close of its FY22. We continue to believe that investor perception of AMBANK will normalise back to its pre-global settlement times, supported by its strong earnings delivery. The resumption of dividend payments could also be a catalyst for investor interest to return.

Source: Kenanga Research - 1 Jun 2022