ABMB’s 9MFY24 net profit (-6% YoY) was within expectations. The group’s successful acquisition strategies have led to better-than-industry loans growth rates which we believe could be sustained in the medium-term, amidst the group’s cautiousness. More strides are made towards cleaning its books, especially towards its legacy AOA accounts. Maintain OUTPERFORM and GGM-derived PBV TP of RM4.30. ABMB is one of our 1QCY24 Top Picks.

9MFY24 within expectations. ABMB’s 9MFY24 net profit of RM512.7m made up 70% of our full-year forecast and 77% of consensus full-year estimate. No dividend was declared as the group typically declares its dividends biannually.

YoY, 9MFY24 total income grew 4% mostly on the back of better fees from its non-interest income segments. Loan book expanded by 13% but owing to more depressed NIMs at 2.57% (-19 bps), net interest income stayed flattish (+2%). On the flipside, cost-income ratio widened to 48.2% (+4.1ppt) due to greater wage expansion from collective agreements in addition to more marketing and IT investments made during the year. This undermined pre- impairment profit by 4%. As credit cost was relatively stable at 26bps (-1bps) from write-backs exercised on certain corporate books, this translates to 9MFY24 net profit to come in at RM512.7m (-6%).

QoQ, 3QFY24 net interest income grew more supportive (+3%) as NIM compressions was well managed (-3bps) on the back of more loan acquisitions (+4%). On the other hand, non-interest income fell 33% due to the preceding quarter benefitting from large one-off bancassurance fees. This led to softer total income (-3%) which cascaded to weaker 3QFY24 earnings of RM176.9m (-5%) as lower operating expenses were offset by higher taxes.

Briefing highlights. The group maintained its headline guidances with hopes to beat thanks to better trajectories ahead.

1. Against its loans growth target of 8%-10%, the group had well exceeded it at 12% YTD. The group had opted to maintain its target in the event of unforeseen spillovers from unfavourable global economic factors which could affect its books. Most of its loans growth is credited to wholesale, manufacturing and retail segments. That said, we do not believe that any impact could translate immediately to its portfolio which as of its 3QFY24 books, comprises of 35% in SMEs.

2. With regards to economic factors, the group opines that it is not overly exposed to net importers or exporters amidst the ongoing weakness in domestic currency with the country’s present investment cycle hoping to stimulate long-term prosperity. This should ultimately keep asset quality supportive. ABMB had a full- year credit cost guidance of 30-35 bps (9MFY24: 26 bps).

3. The group appears to be improving the GIL of its legacy AOA portfolio with more aggressive actions set by its collection division whilst providing waivers to certain accounts. Write-back evaluations are ongoing with its remaining overlays resting at RM157.3m.

4. On NIMs, ABMB did not escape the intense deposits competition led by year-end seasonality. However, it believes that present conditions may allow for better margin retention, likely stemming from a stable OPR outlook.

Forecasts. Post results, we tweak our FY24F/FY25F earnings by -3.3%/0.3% following 3QFY24’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 pay-out ratio of 50% to hold, we anticipate dividend yield to come close to 8%. ABMB is one of our 1QCY24 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 - 28 Feb 2024