We maintain our OP call and GGM-derived PBV TP of RM4.75 (COE: 10.7%, TG: 3.5%, ROE: 9.5%). From a recent briefing, we gathered that the group is cautious with the near-term outlook arising from inflationary pressures spurred by rising rates and costs. That said, we are affirmed that the group’s fundamentals and strategies could help ingrain its market position and cushion any unforeseen market-wide pressures.

The group recently conducted its post-2QFY23 sell-side briefing to provide further insights. Our key takeaways are as follows:

- Shift in loans base to stimulate growth. Breaking down its YTD loans growth of 6% (YoY +8%), a key driver comes from larger existing corporate accounts which are made predominantly on termed loans. The group opines that with their expiry in mind, it would be filled up by a growing SME base with business banking activities seen to pick up in 2HFY23. Year-end seasonality could keep this segment vibrant, which we believe is mainly from the service sectors.

- Mindful of housing loans. There was a moderate rise in the impairments of residential properties (+44% YTD), being the steepest increase seen amongst the group’s overall loans profile. The rise in asset staging here could be attributed to housing loans being one of the leading segments falling into moratorium and repayment assistance programs, hence their graduation without significant improvement to borrower cashflow could trigger delinquency. The group is wary that defaults could not have peaked, given the subsequent OPR upcycle which could be further detrimental to affordability. We believe this issue would not be exclusive to AMBANK and we take comfort that the group still commands flexibility in its provisions, with a 1HFY23 credit cost of 25 bps still being below its target of 35-40 bps.

- Credit cost management still buoyant. The group still holds management overlays of RM424m, which it does not intend to offset in the near-term. Further clarity is needed with regards to the impact of inflationary pressures towards retailers, though we believe that this too is an industry-wide dilemma. Recall that the observation period for trouble accounts range between 6-12 months.

- Digital initiatives to generate longer-term yields. With its inaugural Digital Day recently conducted, the group adds that the gains from its digital partnerships may not lead to a direct material translation to earnings in the immediate term. Rather, the various partnerships should strengthen underlying ecosystems and build more efficient customer acquisition streams.

Forecasts. Post updates, we leave our FY23F/FY24F assumptions unchanged.

Maintain OUTPERFORM and TP of RM4.75. Our TP is based on an unchanged GGM-derived PBV of 0.84x (COE: 10.7%, TG: 3.5%, ROE: 9.5%) on an applied CY23F BVPS of RM5.69. We believe the group could be a key beneficiary of the ongoing economic recovery from its notable SME loans profile (21%), asset quality concerns on household sectors aside. The group also seeks to enjoy a better long-term growth trajectory from the abovementioned more aggressive partnerships against its peers. Meanwhile, we believe there will be more interest in AMBANK following its re-entry into the FBM KLCI. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us.

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 - 5 Dec 2022