We maintain our GGM-derived PBV TP of RM4.00 (COE: 11.0%, TG: 3.0%, ROE: 10%) and OUTPERFORM call. We make no fundamental adjustments to our assumption post yesterday’ sustainability webinar but are more upbeat from greater clarity on the group’s efforts to boost its ESG standing, mainly in its key SME target markets. There is no adjustment to our TP based on ESG of which it is given a 3-star rating as appraised by us.

ABMB hosted a Sustainability Webinar to brief on the group’s achievements in sustainability while providing updates to its strategies to meet its FY25 targets. Key takeaways are as follows:

- RM2.1b of sustainable banking sealed in FY22. This makes up 4% of the group’s total loans portfolio (mostly comprising SMEs), and exceedingly outperformed its initial RM500m target. Better education has translated to a rise in demand for low carbon transition and sustainable investments. This was further aided by the group’s Sustainability Framework (Dec’2020) and ESG Screener to ease portfolio classification and assessment.

- RM10b loans and capital market products portfolio by FY25. As of 1QFY23, the group claims to now hold a cumulative sustainable banking business portfolio of RM3.3b and is on track to meet its updated FY25 target of RM10b from a mix of financing, green bonds and sukuk. Its Sustainability Solutions and Sustainability Assistance Programs to SMEs seek to better educate its existing pool of customers while capturing new ones. Commercial segments are also targeted with competitive rates towards renewable energy (i.e. solar investments).

- Quality lending to be upheld. Cognizant of various sustainability classes, the group seeks to improve its ESG profiling to be less “C5” skewed (<60% or RM2.8b). Additionally, lending remains prohibited for ESG-negative segments such as: (i) coal-fired power plant and mining; (ii) unconventional oil and gas (shale) operations; (iii) environmentally damaging activities; and (iv) certain entertainment related businesses. While the current mix of high risk sectors (i.e. palm oil, oil & gas) is low (<5% of loan books), the group intends to keep such exposure as limited as possible.

Post update, we leave our FY23E/FY24E assumptions unchanged.

Maintain OUTPERFORM and TP of RM4.00. Our TP is based on a GGM-derived PBV of 0.88x (COE: 11.0%, TG: 3.0%, ROE: 10%) on its estimated CY23 BVPS of RM4.56. The group’s dividend-ROE stands at an attractive level between the smaller cap banks. This is aided by the group returning to pre-pandemic payouts (50%) which we believe could whet up better appetite among investors. All in, we do not think it is farfetched for investors to possibly enjoy yields of c.7%, the second most attractive payout within the banking space.

Risks to our call include: (i) higher-than-expected margin squeeze, (ii) lower-than-expected loans growth, (iii) worse-than-expected deterioration in asset quality, (iv) slowdown in capital market activities, (v) unfavourable currency fluctuations, and (vi) changes to OPR.

Source: Kenanga Research - 22 Jul 2022