Kenanga Research & Investment

AMMB Holdings - Playing to Win

Publish date: Thu, 20 Jun 2024, 10:47 AM

We maintain our OP call and GGM-derived PBV TP of RM5.20 (COE: 10.2%, TG: 4.25%, ROE: 9.0%). The group hosted a briefing to highlight its FY29 aspirations (return on assets, cost efficiency, dividends) and indicative strategies to achieve them. It is also hoped that operating in a stronger fundamental shape, the group could command higher trading values at 1.0x PBV (vs 0.7x at present).

The group conducted its 2024 Investor Strategy Day to outline its long- term plans and targets. Our key takeaways are as follows:

  • FY29F return on assets to hover at 1.10% (FY24: 0.97%). The group looks have a more focused and selective approach on its growth drivers:
    • Retail segment: To reform the retail segment into the net funder of the group for its more well-managed funding cost, the group looks to: (i) boost affluent market size with better wealth management solutions and offer more lifestyle-related propositions to attract higher value accounts, and (ii) mass market with better engagement, more payroll-related facilitation and digital support
    • Business banking: The group looks to consolidate its SME and enterprise units for better cohesion with its product offerings and to build stickiness. For more effective book building, the group may look into targeting specific economic beneficiaries (i.e. infrastructure projects, better State-related prosperity in Johor and East Malaysia). At the meantime, proactive engagement with foreign partners could better support injection of business activities.
    • Wholesale banking: Similarly, wholesale strategies could be more inclined on penetrating the end-to-end value of supply chains. This may involve a more grounded approach whereby AMBANK would expand on its structured products (i.e. warehousing) and distribution channels. In expanding its business, it may also consider loan syndication as a means to lower its credit risks.

      In the perspective of ROE, the group believes it could amount to 11%-12% in FY29 (from 8.3% in FY24).
  • FY29F cost-to-income aimed at 40% (FY24: 44%). Although lowering cost-to-income hinges on doing better on the top line, the group looks to also sweat existing assets while investing in better efficiencies. It has outlined a 5-year capex plan of RM900m which are predominantly infrastructure (30%) related to modernising solutions and to build up its big data analytics capabilities. Upgrading and refreshing existing infrastructure could also churn better productivity for the group in the long run.
  • Progressive improvements to dividend payout (FY24: 40%). Having completed its capital build-up post-global settlement, the group mulls to better reward shareholders with gradual increments to its payout ratio (possible up to 50%), where we gathered the highest recent pay-out was 44% in FY19. The plan may include dividend reinvestments to also fuel shareholder retention. Assuming the group is to realise a 50% pay-out in the near-term, it would drive dividend yields to >6% based on our earnings forecasts.

Forecasts. Unchanged

Maintain OUTPERFORM and TP of RM5.20, based on an unchanged GGM-derived CY25F 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 pay-outs 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 - 20 Jun 2024

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