We maintain our GGM-derived PBV TP of RM4.30 (COE: 11.2%, TG: 3.0%, ROE: 10.0%) and OP call. Post-meeting, we are positive on the group’s near to medium-term prospects, held by continued confidence in top line growth and sustained profitability. The group may see higher operating expenses with minor hiccups in asset quality, but these may not significantly undermine its profits and sustainability. ABMB is one of our 4QCY23 top picks.

Key takeaways from our recent meeting with the group are as follows:

- 8%-10% loans growth not a stretch. Despite some softness in our headline GDP expectations, ABMB reckons that its FY24 loans growth target is a comfortable (1QFY24: +7.9% YoY) given the strong standing of its mortgage and SME portfolio. These segments may continue to see positive traction from stable macro environments, albeit a challenging inflationary environment may further underpin its smaller corporate portfolio.

- SME focus remains. As part of the group’s ACCELER8 2027 initiative, its near-term and long-term growth in market share would be led by SME expansion. ABMB looks to leverage on improved digital tools which includes better management facilities that could drive stickiness. These platforms could also result in a more efficient salesforce with more efforts being spent on customer acquisition, of which the group hopes to gain a stronger penetration in its presently less active regions (i.e. north and east Malaysia).

- Higher investments are granted. That said, to fuel the above mentioned, the group would likely see further capital expenditure to ramp up its capabilities. However, a higher cost-income ratio expectation of <48% (FY23: 46%) is likely to be still moderate given its pairing with a stable ROE target of 10.5% (FY23: 10.3%).

- NIMs expectations realistic. The group maintained its newly revised 2.45%-2.50% NIMs target (1QFY24: 2.43%, FY23: 2.64%), indicative that the group is poised to regain some lost profitability albeit flatly. We believe the group may not be overly excessive with the re-pricing of its termed deposit products, awaiting the expiry of more costly lock-ins from Dec 2022’s intense price competition. Expectations for flattish OPR could also keep margins stable.

- Loans trajectory to make up for flattish 1QFY23. 1QFY23 loan book plateaued QoQ against the system loan growth of 1.4% in the same period. This is attributed to the normalisation of higher drawdowns in 4QFY22 and healthier bookings backed by higher disbursements in housing mortgages. While auto financing also appears to be growing, contribution is muted by its relatively low participation in this space. Meanwhile, the SME pipeline will likely remain supported by growing working capital needs as the economy expands. Recall the group has a 6%−8% FY23 loan target.

- Recalibrating overlays a possible consideration. As of 1QFY24, ABMB maintained overlays of RM256m which consists of both Covid and non-Covid provisions. While the group has been progressively reversing these overlays, we gathered there is still an emphasis on prudence as to not under-account potential shifts in asset quality. This is likely in line with its credit cost guidance of 30- 35 bps, which is close to its FY23’s 32bps reporting which may also be anchored by deterioration in its AOA portfolio.

Forecast. Post-meeting, we leave our earnings assumptions unchanged.

Maintain OUTPERFORM and TP of RM4.30. Our call is based on an unchanged GGM-derived CY24F PBV of 0.86x (COE: 11.2%, 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. We continue to like to stock as its 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%. ABMB is one of our 4QCY23 Top Picks.

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 - 23 Oct 2023