ABMB’s 1HFY24 net profit (-9% YoY) and interim dividend were within expectations. We expect the group to see a stronger 2H period fuelled by meaningful customer acquisitions on the back of returning interest margins. Retail consumers and SMEs remain the key focus segment. Maintain OUTPERFORM and GGM-derived PBV TP of RM4.30. ABMB is one of our 4QCY23 Top Picks.

1HFY24 within expectations. ABMB’s 1HFY24 net profit of RM335.9m made up 46% of our full-year forecast and 50% of consensus full-year estimates. An interim dividend of 10.85 sen was declared. We deem this to be within our full-year expectations of 24.5 sen based on a c.50% payout.

YoY, 1HFY24 total income gained 4%. Although NIMs stayed lower (2.57%, -12 bps), net interest income was held by a 10% loans growth. Meanwhile, noninterest income grew by 16% driven by higher wealth management fees and investment returns. That said, due to higher personnel costs from collective agreements, cost-income ratio rose to 48.0% (+4.1ppts). Credit cost came in at 30 bps (+5 bps) on more normalised asset quality conditions as 1HFY23 had reported one-off recoveries. From the abovementioned higher operating expenses and provisions, 1HFY24 net profit declined to RM335.9m (-9%).

QoQ, 2QFY24 similarly saw net interest income and non-interest income improve which translated to a total gain of 13%. This had sufficiently covered for higher operating expenses and credit cost for the quarter, leading to net profit to report at RM185.3m (+23%).

Briefing highlights. While the group had reported a comparably weaker set of earnings, it opines that its sequential periods could perform better as reflected in its recent quarter.

1. The group’s customer acquisition strategies appear to be paying off meaningfully with a commendable inflow of new-to-bank consumer and SME accounts on a monthly basis. We opine that the group could outperform its 10% loans growth target for FY24, which it opted to maintain for the time being.

2. On the flipside, this led loan-to-deposit ratio to reach 99% (1HFY23: 94%). The group believes that its liquidity is still fairly manageable but would still strive to lower this ratio to 96%-98% with hopes of more CASA to open in the coming quarters. We note that the group’s fixed deposit amount did see a sequential decline which would bode well for overall NIMs.

3. While its loans acquisition appears aggressive, the group remains firm to prioritise high quality assets with decent yields as opposed to larger but lower margin accounts. This would help to keep long-term delinquency threats under control. The group also believes that its lumpy gross impaired loan of 2.5% has peaked, attributed by higher seasonal weakness during 1HCY23.

4. Meanwhile, its legacy Alliance ONE Accounts may continue to stress its books as some accounts have been affected by the expiry of assistance programs in addition to greater repayment stress from higher interest rates and inflationary pressures. That said, ABMB are not onboarding new accounts into the program to contain the risks it carries.

Forecasts. Post results, we tweak our FY24F/FY25F by -1% following 2QFY24’s inputs.

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. 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%. 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-than-expected deterioration in asset quality, (iv) slowdown in capital market activities, (v) unfavourable currency fluctuations, and (vi) changes to OPR.

Source: Kenanga Research - 1 Dec 2023