ABMB’s 1QFY24 net profit (-29% YoY) was within expectations with recovery in fund-based streams to come, albeit with the group now slightly softening its NIMs target. The group continues to have a strong grasp in the commercial and SME spaces which may be overall more profitable in the long-run. Maintain OUTPERFORM and GGM-derived PBV TP of RM4.05.

1QFY24 within expectations. ABMB’s 1QFY24 net profit of RM150.5m made up 20% of our full-year forecast and 22% of consensus full-year estimates, in anticipation of stronger quarters lifted by NIMs recovery. No dividend was declared as expected, given that the group usually pays biannually.

YoY, 1QFY24 net interest income inched up (+2%) thanks to an 8% larger loans books offset by some compression in NIMs (2.51%, -9 bps). On the other hand, non-interest income declined by 21% no thanks to deepening treasury losses. Due to the drop in total income (- 2%) and higher salary adjustments, cost-income ratio rose to 49.3% (+4.9ppts). Meanwhile, credit cost for the period came in at 28bps (as compared to 1QFY23 write-back of 15bps) as several accounts appear vulnerable to the higher interest rate environment (including legacy Alliance ONE Accounts), with some notables in the manufacturing sector. All in, 1QFY24 net profit came in at RM150.5m (-29%).

Briefing highlights. Broadly, the group believes that most challenges are well managed but opines that NIMs may see prolonged hurdles.

1. The group seeks to narrow its NIM guidance slightly to 2.45%- 2.50% (from 2.50%-2.55%). While they believe contraction is closing to an end from aggressive deposits competition previously, a sustained trajectory may require some time.

2. A loans growth target of 8%-10% is maintained as the group believes it continues to possess a strong foothold in its commercial and SME segments. It opines that a higher exposure here will be beneficial to overall profitability as it generally garners higher return as opposed to retail accounts.

3. Legacy Alliance ONE Accounts appear to see repayment concerns resurfacing following the stress from higher interest rates. The group believes that further pressures from this group is currently well contained but notes that accounts which had not received assistance in the past are also showing signs of delinquency. That said, the group believes a net credit cost exposure of 30bps-35bps as guided would be sufficient to manage asset quality risks for the year with the group progressively writing back on its pandemic related and general overlays. As of this report, the group maintains an outstanding overlay of RM256m.

4. While the group’s gross impaired loans reading seems to be peaking at 2.63%, a guidance of 3% for the full-year was provided. However, we suspect these levels are unlikely if the group continues with the progressive writing back of its remaining overlays.

Forecasts. Post results, we tweak our FY23F/FY24F by -3%/-2% following 1QFY24’s inputs.

Maintain OUTPERFORM and TP of RM4.05. Our call is based on an unchanged GGM-derived CY24F PBV of 0.81x (COE: 11.7%, TG: 3%, ROE: 10%). 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. In spite of the lower loans growth outlook, the stock’s fundamentals are still comparatively better than its larger cap peers in terms of ROE and dividend yields. At current price points and assuming estimated payout ratio of 50% to hold, we anticipate dividend yield to come close to 8%.

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

Source: Kenanga Research - 30 Aug 2023