9MFY23 net profit of RM1.31b (+18%) is within expectations. Despite industry-wide pressures on interest margin, its earnings growth remains on track driven by broad loans acquisitions and stable cost management, post-insurance divestiture. Poorer asset quality readings may also be expected from expiring assistance accounts, but we believe this is an industry-wide phenomenon. Maintain OP with a higher GGM-derived PBV TP of RM5.00 (from RM4.75) as we roll over our valuation base year.

9MFY23 within expectations. 9MFY23 net earnings of RM1.31b made up 79% of our full-year forecast and 80% of consensus full-year estimate. This includes contributions from its partially divested general insurance operations (losses of RM77.5m) and minority interests gains from its transition as a subsidiary to an associate company (51% to 30% holdings). No dividend was declared, as expected given the group typically pays biannually.

YoY, 9MFY23 total income grew by 11% as interest income gained from a higher loans base (+6%) and OPR-led net interest margin (NIM) expansion (2.12%, +21 bps). On the flipside, non-interest income was flattish from mix performances from its trading and fee-based income. Meanwhile, cost-income ratio was stable at 42.1% as overall expenses grew proportionately to income. Credit cost came off to 33 bps (-50 bps) on improving asset quality outlook, albeit with a top-up of RM103m in 3QFY23 on forward-looking provisions. All-in, continuing operations reported a 25% increase in earnings but after excluding discontinued operations in AmGeneral and minority interest, 9MFY23 net profit came to RM1.31b, growing by 18%.

Briefing’s highlights. With the stabilisation of OPR, NIM prospects are expected to fade as deposit repricing will catch up with variable rate loans (namely mortgages). Additionally, the progressive shedding of CASA deposits to more competitive fixed deposits could further lock cost of funds. Still, the group is unfazed as it believes that its loans growth trajectory (guided at 6-7% for FY23) would be leading its RM400m/quarter earnings guidance. Meanwhile, gross impaired loans ratios are expected to creep up but mainly due to the non-performance of graduating assistance accounts (3% of total loans) and smaller book size portfolios. The group believes its RM420m overlay reserves provide a sufficient cushion against this and other uncertainties.

Forecasts. Post results, we slightly raise our FY23F/FY24F earnings by 2%/1% from model updates.

Maintain OUTPERFORM with a higher TP of RM5.00 (from RM4.75, previously). We roll over the valuation base year to CY24F for a higher applied BVPS of RM6.05 (from RM5.69) against a GGM-derived PBV of 0.82x (COE: 10.7%, TG: 4%, ROE: 9.5%). 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 should its counterparts under-deliver. 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 - 24 Feb 2023