• Maintain BUY, new MYR5.90 TP from MYR5.50, 18% upside with c.5% FY25F (Mar) yield. AMMB’s Winning Together phase got off to a flying start, with 1QFY25 results beating expectations. A 10bps QoQ NIM expansion was the highlight, in our view – this overshadowed the more exceptional lower- than-expected credit costs. This, combined with a robust loan and investment banking pipeline, should be more sustainable for earnings growth ahead. AMMB remains a sector Top Pick for its undemanding valuation and capital management potential.

• Results review. 1QFY25 net profit of MYR500.2m (+32% YoY, +5% QoQ) came in ahead of expectations, at 28% of our and consensus full-year estimates. The main deviation came from lower-than-expected impairment allowances (-94% YoY, -40% QoQ) as the group made a net write-back on forward-looking provisions, due to a more positive macroeconomic outlook. Operating income dipped by 2% YoY after a 2% decline in NII (+13bps NIM expansion offset by shrinkage in interest-earning assets), although this was mitigated by a 9% increase in non-II. QoQ, operating income was largely flat, but opex decreased by 2% from a high base. As such, PPOP was up 2% QoQ, but down 1% YoY. All in, 1QFY25 ROE stood at 10.1% (1QFY24: 8.3%, 4QFY24: 9.9%).

• Further NIM uplift possible. While NIM has already expanded 10bps QoQ thanks to proactive cost of funds management, the group believes NIM still has room to improve further. Its funding mix can be optimised further, as term funding rates are still on a downtrend. On deposits, AMMB began repricing down its board rates in Jul 2024. A pick-up in loan growth (1QFY24: -1% QoQ, +3% YoY), especially in higher-yielding product segments, should allow interest income to expand too.

• Pipelines remain robust. Management indicated that its loan pipeline is robust – in particular, coming from the construction and real estate sectors – and should allow it to reach the targeted mid-single digit YoY growth by the year end. At the same time, the group also remarked that its investment banking deal pipeline is also busy while, on the treasury and markets side, it is sitting on decent profits after a favourable showing from the fixed income and equity markets recently.

• Asset quality in a decent position. AMMB’s NPL ratio inched up 3bps QoQ (YoY: +4bps) to 1.70%, mainly from the household and construction sectors. It is actively working on recoveries from large defaulted accounts, which could provide some upside to credit costs. It currently has an overlay balance of MYR541m (c.27% of total provisions), which it views as optimal.

• FY25F earnings raised by 3% as we impute more optimistic NIM assumptions, while FY26F-27F net profit are now higher by 1%. Our TP rises to MYR5.90 (from MYR5.50), and includes an unchanged 4% ESG premium.

Source: RHB Research - 21 Aug 2024