AMBANK’s 1HFY24 reported net profit (+2%) and dividends were within expectations. NIMs may remain at low bases albeit at more supportive levels. The group’s overlay reserves continued to be utilised with a notable pool likely intact in case of unfavourable shifts in economic climate. A lumpy BAU tax deduction is due to uplift the subsequent quarter and keep earnings target in check. Maintain OP and GGM-derived PBV TP of RM4.80. AMBANK is one of our 4QCY23 Top Picks on a renewed consolidation angle.

1HFY24 within expectations. AMBANK’s 1HFY24 reported net earnings of RM848.1m made up 53% of our full-year forecast and 51% of consensus full-year estimate. An interim dividend of 6.0 sen was declared which we also deem to be within our expectations in anticipation of a lumpier payout for 2HFY24 to meet our 19.0 sen target (40% payout).

YoY, 1HFY24 total income only increased slightly by 2%. This was due to a 3% decline in net interest income from softening NIMs (1.87%, -25 bps) from higher funding cost amidst a 5% rise in loans growth. This was offset by stronger non-interest income (+26%) thanks to improved treasury market and insurance results. Cost-income ratio increased to 44.5% (+1.5ppt) as operating expense growth outpaced income, no thanks to higher manpower costs. Meanwhile, the credit cost for the period also rose to 34bps (+12bps) from more provisions allocated to certain retail and SME accounts. That said, this included overlay writebacks of RM147m which translates to 11bps. All in, AMBANK’s 1HFY24 net profit was flattish at RM848.1m (+1%). Excluding discontinued operations from AmGeneral which was disposed in Jul 2022, continuing operations would have declined by 3%.

Briefing’s highlights. From its recent posting, the group remains confident that its FY24 earnings guidance of more than RM400m per quarter (or c.RM1.6b, -8% YoY) could still be met.

1. 2HFY24’s loans growth likely hinges on large corporate dealings to boost its wholesale lending segment which saw a decline on a YTDbasis. The group’s loans book is seen to be flattish, only carried by continued demand from retail portfolio.

2. NIMs may continue to linger at above 1.80% in the coming quarters, indicating stable performances for 2HFY24. The group acknowledges that greater CASA participation from business banking is a key support. That said, the group is not overly concerned about liquidity as loans-to-deposits ratio is still below 100%.

3. A remaining overlay book of RM314m mainly accounts for extended retail repayment assistance accounts (c.RM200m). That said, given the group’s appetite for write-back to rationalise its forward provisions, we reckon the group may use this to keep quarterly credit cost readings in check.

4. A total tax deduction of RM538m is expected to be recognised in 3QFY24, following a successful award of tax credit for the group’s conventional banking and investment banking units. While the group opines it may not lead to special dividends due to the lack of encashment, it would boost the group’s CET-1 ratio to well above 13% which may allow for better considerations going forward.

Forecasts. Post results, we tweak our FY24F/FY25F earnings by -1% from model updates.

Maintain OUTPERFORM and TP of RM4.80. Our TP is based on a GGM-derived CY24F PBV of 0.80x (COE: 10.2%, TG: 4.25%, ROE: 9.0%). 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 better position to deliver better dividend payouts of c.40% (from 35%) which we are anticipating. The group is also one of the leaders in terms of SME profile, which is touted as a high-growth segment that could accelerate market share growth for the group should we anticipate better economic prospects in the medium-term. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us. AMBANK 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 Nov 2023