We maintain our OP call and GGM-derived PBV TP of RM4.80 (COE: 10.2%, TG: 4.25%, ROE: 9.0%). From a recent briefing, while we gathered a cautiously optimistic tone for the group, we believe that it has firm strategies in sustaining its fundamentals. Loans growth is expected to stay supported with returning margins to carry earnings. Meanwhile, asset quality concerns are expected to remain well-contained with OPR sidelining, as expected. AMBANK is one of our 3QCY23 Top Picks.

The group recently conducted its post-1QFY24 sell-side briefing to provide further insights. Our key takeaways are as follows:

- Opportunities persist amidst moderating GDP. The group viewed that its loans growth may more modestly perform in-line with the industry at 4%-5% as overall activities appear to be easing. As we gathered that AMBANK has a meaningful 21% SME proportion to its overall books, the group notes that opportunities are present from the relocation of businesses from overseas to local logistics and industrial hubs. Meanwhile, a growing data center segment is also fuelling AMBANK’s books.

- Home loan values were stable. Additionally, its average housing loan value (33% of total) remained steady (at c.RM600k) and was not diluted by a meaningful growth in affordable housing mix.

- Mindful of liquidity. CASA readings for the group fell to 30% in 1QFY24 (4QFY23: 37%, 1QFY23: 33%) as larger accounts remained sensitive to higher rate offerings. That said, it will still opt to manage funding costs efficiently even if it may lead to some loss in fixed deposits share. As of 1QFY24, AMBANK holds a liquidity coverage ratio of 170% and a loans-to-deposits ratio of 99%, which it thinks is highly sufficient for it to keep up with its loans growth target.

- Margins to seep back in. The group had attributed previous NIM pressures to be dragged by simultaneous maturity and renewal of fixed deposit accounts between Dec 2022 and Jan 2023 which have once again matured from an average tenure of 7 months. As rates are significantly friendly to AMBANK, funding cost would largely ease from here. However, due to most of its benefits likely being captured in 1QFY24, this could be why the group is only anticipating stable NIMs throughout the year (c.1.90%).

- Flattish OPR a good note for credit cost. The group closed 1QFY24 with provision overlays of RM362m while also have considered forward looking measures in the event of possible deterioration of economic readings. Given BNM’s recent call to maintain rates, it is likely that certain measures may have been over accounted for which may lead the group to tone down its allowance requirements in the coming quarters. For now, a stable credit charge of 35 bps for FY24 may not be an issue to meet.

Forecasts. Post updates, we leave our FY24F/FY25F assumptions unchanged.

Maintain OUTPERFORM and TP of RM4.80. Our TP is based on an unchanged GGM-derived PBV of 0.80x (COE: 10.2%, TG: 4.25%, ROE: 9.0%) on an applied CY24F BVPS of RM5.99. Despite a slightly more conservative fundamental landscape, we continue to believe our thesis that AMBANK is still in a better shape for consolidation. On top of securing sustainable ROEs of c.9% (since FY19 of <9%), the group may now be in a stronger position to deliver better dividend payouts of c.40% (from 35%) which we are anticipating. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us. AMBANK is one of our 3QCY23 Top Picks.

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 - 11 Sept 2023