Though the group is cautious with the near-term outlook arising from inflationary pressures spurred by rising rates and costs, we affirmed that the group’s fundamentals and strategies could help ingrain its market position and cushion any unforeseen market-wide pressures. BUY with TP of RM4.75 based on PBV of 0.84x on an applied CY23F BVPS of RM5.69. We believe the group could be a key beneficiary of the ongoing economic recovery from its notable SME loans profile (21%), asset quality concerns on household sectors aside. We believe there will be more interest in AMBANK following its re-entry into the FBM KLCI.

Breaking down its YTD loans growth of 6% (YoY +8%), a key driver comes from larger existing corporate accounts which are predominantly term loans. The group opines that with their expiry in mind, it would be filled up by a growing SME base with business banking activities seen to pick up in 2HFY23. Year-end seasonality could keep this segment vibrant, which we believe is mainly from the service sectors.

There was a moderate rise in the impairments of residential properties (+44% YTD), being the steepest increase seen amongst the group’s overall loans profile. The rise in asset staging here could be attributed to housing loans being one of the leading segments falling into moratorium and repayment assistance programs, hence their graduation without significant improvement to borrower cashflow could trigger delinquency. The group is wary that defaults may not have peaked, given the subsequent OPR upcycle which could be further detrimental to affordability.

The group still holds management overlays of RM424m, which it does not intend to offset in the near-term. Further clarity is needed with regards to the impact of inflationary pressures towards retailers, though we believe that this too is an industry-wide dilemma. Recall that the observation period for trouble accounts range between 6-12 months.

The group adds that gains from its digital partnerships may not lead to a direct material translation to earnings in the immediate term. Rather, the various partnerships should strengthen underlying ecosystems and build more efficient customer acquisition streams.

Source: Rakuten Research - 5 Dec 2022