AMBANK’s FY24 results and dividends were above expectations as 4QFY24 earnings uplift came from lower-than-expected provisions. The group’s near-term target appears conservative but is in line to reflect modest growth as economic prospects improve. We raise our FY25F forecast by 8% on lower provisioning and raise our GGM-derived PBV TP by 8% to RM5.20 as we roll over our valuation base year. Maintain OP.

FY24 beat expectations. AMBANK’s FY24 core net profit of RM1.55b exceeded our full-year forecast and consensus’ adjusted full-year estimates by 8%. The positive deviation from our end was attributed to lower-than-expected provisions following 3QFY24 heavy bookings. A final dividend of 16.6 sen (total FY24: 22.6 sen) also beat our anticipated 19 sen from its stronger reporting and reversion to pre- pandemic payout of 40%.

YoY, FY24 total revenue was flattish with net interest income seeing a 4% decline on the back of moderate loans growth (+3%) against continued NIM compression (1.83%, -17 ppt). However, this was offset by supportive non-interest income (+15%) from better trading results. Adjusting for one-off impairments, restructuring expenses and tax gains, core net profit declined 11% mostly due to a heftier credit cost at 51 bps (+17 bps) following conscious effort to build buffers.

QoQ, 4QFY24 total income dipped slightly (-2%) as although net interest income saw some recovery (+6%), there was a softer comparable performance in trading results. On the flipside, 4QFY24 core net profit was substantially stronger (+142%) as it lacks the frontloaded provisions booked during 3QFY24’s reporting.

Briefing highlights. With capital building being a priority in FY24, the group looks to reap better fundamental earnings with its new headline guidances.

1. AMBANK targets for loans growth to be at least in line with its GDP forecast of 4%-5%. This could be supported by further gains in the SME space with appetite for mortgages still appearing stable. On the back of greater economic activities, sectors like construction are likely to add to its growth while steadying the quality of its books.

2. GIL is hopeful to remain stable at the very least (FY24: 1.67%) as repayability becomes a less pressing concern. The group has accumulated a sizeable overlay of RM502m which could help to better manage its credit cost for the year, which it target to keep within 30-35 bps.

3. The landscape for funding cost continue to appear stretched for the group, albeit with measures to offset looking to show results with the dependence of senior unsecured bonds amongst others. While the group is abstaining from offering guidance on NIMs, it opines that sequential improvements are likely due.

4. Absent one-off adjustments, AMBANK looks to land a ROE of 10% in FY25 from the pillars above. Structurally, this target will likely be unaffected by ANZ’s exit as a major shareholder given that there are no fundamental changes to the group’s operations. Meanwhile, its collaborative partnership with BonusLink is not likely to be immediately affected by Shell Malaysia’s planned exit from the country as we believe a successful sale to Saudi Aramco would subsequently require an extended transitional phase.

Forecasts. Post results, we raise our FY25F earnings by 8% as we lower our provisioning assumptions and slightly more bullish loans growth for the group. Meanwhile, we also introduce our FY26F earnings.

Maintain OUTPERFORM with a higher TP of RM5.20 (from RM4.80). Against an unchanged GGM-derived PBV of 0.80x (COE: 10.2%, TG: 4.25%, ROE: 9.0%), we roll over our valuation base year to CY25 estimated BVPS of RM6.46. 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.

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 May 2024