ABMB’s FY24 net profit (+2% YoY) met expectations although dividends missed slightly. The group’s headline trajectories seem to be brewing well, though the group is wary of shifts in market conditions from macro headwinds later on. We tweak our FY25F numbers by -2% post-results update and raise our GGM-derived PBV TP by 7% to RM4.60 (from RM4.30) as we roll over our valuation base year. Maintain OUTPERFORM with ABMB being one of our 2QCY24 Top Picks.

Within expectations. ABMB’s FY24 net profit of RM690.5m made up 98% of our full-year forecast and 103% of consensus full-year estimate. However, its total dividend payment of 22.6 sen was below our anticipated 24.5 sen as we had factored a slightly higher potential pay-out of 53%.

YoY, FY24 total income grew by 5% as loans growth impressed at 14%, mitigating the decline in NIMs (2.54%, -17 bps). Meanwhile, non-interest income saw support from better forex trading in addition to a better wealth management pipeline. All in, FY24 net profit only grew by 2% largely due to cost-income ratio creeping up to 48.2% (+2.3 ppts) as personnel costs were inflated by collective agreements and an enlarged sales force to execute the group’s acquisition strategies.

QoQ, 4QFY24 total revenue only saw a slight uptick (+1%) as stronger interest income was offset by softening trading returns. This translated to net profits being mostly stagnant.

Briefing highlights. Having closed a satisfactory performance with several headline targets exceeded, the group is optimistic for continued momentum but cautions against stretching its goals.

1. Its 14% loans growth performance outperformed its intended 8%- 10% target for FY24, citing greater success in its key SME segments and a strong focus to new-to-bank customers. While the group continues to inject resources into expanding its outreach, it opted to retain its 8%-10% target into FY25 as economic uncertainties may unveil during the year and hamper the SMEs.

2. With regards to NIMs, the group believes the current climate may see risks of further compression as it may need to compete more heavily in the latter half. For now, it does not intend to defend higher profit rates at a guidance of 2.40%-2.45% for the year.

3. Its credit cost guidance of 30-35 bps (FY24: 26 bps) also leans towards precaution as the group has onboarded certain healthy but medium-risk accounts into its portfolio. The expectations for higher provisioning needs could also be spurred by the abovementioned, where the group is seeing SMEs to be one of the segments reflecting sequential increases in GIL.

4. Having reverted back to pre-pandemic level of payments, the group looks to target it dividend payout between 40%-50%, where we had input the higher range of the band into our assumptions to possibly generate yields closer to 7%.

Forecasts. Our FY25F numbers were slightly tweaked from model updates while we introduce our FY26F numbers.

Maintain OUTPERFORM with a higher TP of RM4.60 (from RM4.30), as we roll over our valuation base year to CY25F BVPS of RM5.08. Our call is based on an unchanged GGM-derived 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. On top of its higher-than-industry loans growth projection, 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 7%. ABMB is one of our 2QCY24 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 - 31 May 2024