• Still BUY, new MYR4.50 TP from MYR4.60, 28% upside and c.6% FY24F (Mar) yield. AMMB’s FY23 earnings came in line with our estimates. A solid loan pipeline, improving CASA mix, and stronger non-II offers opportunities for earnings reprieve given an uncertain NIM trajectory. We continue to like the stock given its inexpensive valuation and positive earnings momentum.

• Decent end to FY23. 4QFY23 net profit of MYR428m brought full-year earnings to MYR1.74bn (+15% YoY) – in line with our and Street expectations. For the full year, stronger NII (+8%) managed to offset the decline in non-II (-14%) following the absence of AmGeneral Insurance (AmGen) contributions. Reported PIOP was up 3% YoY while net impairment charges fell 39% in the absence of lumpy provisions made in FY22. Overall, ROAE of 10% met management’s target for the year. A final DPS of 12.3 sen was declared, lifting the full-year amount to 18.3 sen (35% payout).

• Loans growth exceeded target. Gross loans added 9% YoY in FY23, driven by households – mostly from residential mortgages (+7%) – and SMEs (+7%). This compares against the FY23 target of 6-7%. No formal guidance for FY24 was provided, although management is confident its current loan pipeline can help it achieve 5-6% growth.

• May overnight policy rate (OPR) hike to lift short-term NIM prospects. NIM compressed 29bps QoQ on industry-wide deposit competition. Management suggests the recent 25bps OPR hike in May will be supportive of NIM in 1HFY24, though the trajectory remains uncertain further out. An improving CASA franchise – CASA growth outpaced total deposit growth in FY23 – could also benefit NIM. Its fair value through profit & loss (FVTPL) securities are sitting on a net marked-to-market gain position – these could be realised to mitigate any NIM pressure on earnings.

• Expect sequential uptick in GILs. GILs shed 7% QoQ (YoY: +13%) on the back of large recoveries in real estate GILs. While the GIL ratio eased to 1.46% from 1.62% in 3QFY23, management remains vigilant of rises in household (mortgages), construction, and real estate GILs. The bank is also expecting a sequential uptick in GILs as repayments tend to slow down during the festive season, though the situation should be manageable.

• FY24F-25F PATMI largely unchanged as our lowered NIM assumptions are offset by greater non-II. We also introduce FY26F in this report. Our TP falls to MYR4.50, and includes an unchanged 0% ESG premium/discount.

• ESG framework update. As there is greater focus on the E pillar due to critical climate change issues, we have tweaked our ESG weightage. Henceforth, we assign a weightage of 50% to the E pillar, followed by 25% each to the S and G pillars. Further details are in our 2 May thematic research note titled Envisioning a Better Future.

Source: RHB Research - 30 May 2023