1QFY23 earnings of RM212.2m (+45%) are deemed to be within full year estimate on normalising credit cost reporting in the subsequent periods. The group is unconcerned with loans growth backed by its strong SME presence in the backdrop. Meanwhile, customer acquisition activities continue to yield favourable results. Maintain OP and GGM-derived PBV TP of RM4.20. We view ABMB as a commendable ESG-pick.

1QFY23 deemed within expectations. 1QFY23 net earnings of RM212.2m made of 30% of our full-year forecast and 32% of consensus full-year estimates. We deem this to be within expectations as 1QFY23 saw a net impairment writeback whereas the group continue to guide for a moderate incurrence in credit cost, suggesting that loftier bookings could be seen in subsequent periods amid normalising earnings trends. No dividends were declared during this quarter as expected, given the group’s tendency for half-yearly payments.

YoY, 1QFY23 total income inched down by 2% as gains in NII (+4%) from a higher loans base (+7%) with stable NIMs (2.60%) was offset by a decline in NOII (-25%), mainly arising from treasury losses. Against a rise in sales personnel costs and IT investments, CIR rose to 44.4% (+4.4ppts). However, the period saw a net impairment writeback of RM17.3m following the release of RM41.4m in preemptive overlays on specific accounts, operating profits improved by 44% which translated to a 1QFY23 net profit of RM212.2m (+45%).

Briefing highlights. Alluding to a better business landscape, the group seeks to improve its credit cost guidance to 35-40 bps (from 40-45 bps) post reversal of provisions seen in this quarter, mostly allocated to previously troubled contractors. A diminishing repayment assistance proportion (August 2022: 8% of total loans, May 2022: 14%) also supports the expectations for better asset quality. Meanwhile, a higher CASA mix (50%) and rising OPR environment should continue to keep NIMs sustainable amidst rising competition for funds. This is supported by digital initiatives which have strengthened customer acquisition capabilities. Although there was less traction in its recent QoQ loans growth, the group is confident that its 6-8% full-year target could be met on increased opportunities in the SME space from progressive economy recovery and still-present demand for mortgages.

Forecasts. Post results, we slightly tweak our FY23F/FY24F earnings from model updates. Although the group improved its credit cost guidance, our earlier inputs had already accounted for better-than-expected levels (37 bps); hence, our forecasts remain widely unchanged.

Maintain OUTPERFORM and TP of RM4.20.Our TP is based on an unchanged GGM-derived PBV of 0.88x (COE: 11.0%, TG: 3.0%, ROE: 10.0%) on our CY23F BVPS of RM4.57. We had inputted a 5% premium to our TP based on our 4- star ESG rating appraisal, warranted by the stock’s strong green financing pipeline and its sustainable financing policies. The stock’s fundamentals are comparatively better than its larger cap peers in terms of ROE and dividend yields. Coupled with its solid efforts in driving sustainability, ABMB is our top ESG recommendation in 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 - 1 Sept 2022