• Maintain BUY, new MYR5.50 TP (from MYR4.90), 26% upside and c.6% FY25F (Mar) yield. AMMB’s strategy day event yesterday provided a glimpse into the group’s 5-year plan – in summary, it intends to shift its funding mix towards lower-cost retail deposits for greater profitability, and also to double absolute DPS by FY29. While execution will be a challenge, the targets – if achieved – could warrant a re-rating for the counter.

• Financial aspirations. Over the next five years, AMMB’s priorities are to: i) Improve dividend payouts to c.45 sen by FY29 (ie 15% CAGR); ii) improve operational efficiency and bring CIR down to 40% (FY24: 45%); and iii) drive profitability, with a target to raise ROA to 1.1% (FY24: 1.0%, translates to c.11-12% ROE). Another key lever to boost profitability will be to rejig the group’s funding mix by pivoting away from higher-cost wholesale deposits to lower-cost and “stickier” retail ones. Other 5-year CAGR targets include income of 8%, loans and deposits of 6%, and PATMI of 8%.

• Retail banking – pivoting from net lender to net funder of the group. Over the next five years, the group envisions its retail banking division to be a gatherer of lower-cost deposits for it to funnel towards the higher-yielding mid-corporate and SME segments. Consequently, retail loans (primarily mortgages) will take a backseat due to their lower-yield nature. We gather that the division’s customer acquisition strategies will be focussed towards the affluent and mass-affluent segments, which will be offered segment- specific wealth management solutions among others.

• Non-retail – focus on mid-corporates and SMEs. AMMB sees opportunities predominantly in supply chain financing. Geography-wise, aside from the Klang Valley, AMMB is also eyeing the northern peninsular region (electrical & electronics and related), the southern peninsular region (data centres and infrastructure), as well as East Malaysia (enterprise banking).

• Are these targets achievable? Income growth will be the key area of focus, as its 5-year 8% CAGR target looks rather steep, when compared to its FY19- 24 CAGR of 3%, while loan growth levels are comparatively similar. As such, NIM and non-II will have to do most of the heavy lifting. While retail deposits make for a hotly contested space, we think AMMB’s offerings could appeal to its target segments, especially with the right distribution strategies – we regard its plan of tapping into bancassurance partners’ agency forces for wealth distribution as interesting. Separately, we think the target of doubling absolute DPS in 5 years is achievable given existing capital levels (post-F-IRB implementation), and more so with a dividend reinvestment plan.

• We raise FY25-27F net profit by 3-6% as we assume greater NIM expansion and loan growth. We also raise our DPS assumptions. Our new, higher TP of MYR5.50 includes a 4% ESG premium.

Source: RHB Research - 20 Jun 2024