Review

• AMMB reported a stronger set of 2QFY24 results, with net profit rising by 33.4% QoQ and 2.7% YoY to RM469.9mn. YTD's net profit stood at RM822.3mn, a 2.6% decline compared to 1HFY23. Nevertheless, AMMB's results came within expectations, accounting for 48% of our full-year forecast. Annualised ROE slipped to 9.3% vs 9.9% a year ago.

• An interim dividend of 6 sen per share has been proposed, translating to a payout ratio of 23%.

• Including Islamic Banking Operations, the 1HFY24 net interest income (NII) declined by 7% YoY. Net interest margin (NIM) contracted by 38 bps YoY to 1.79% due to higher funding costs. However, the NIM compression moderates as the margin grows by 6 bps QoQ. Meanwhile, YTD loans were little changed as the increases in Retail loans, such as Mortgages, Cards and Auto Financing, were muted by contractions in Wholesale Banking and Personal Financing. Loans in Business Banking saw a slight turnaround in higher customer activity.

• Meanwhile, Customer deposits grew by 4% YoY to RM135.3bn (+4% QoQ), with Time/fixed deposit accelerating by some 13% YoY. CASA deposits, however, declined to around RM43.5bn, translating to a CASA ratio of 32.2% vs 37.4% in FY23.

• Total non-NII widened by 36% YoY, underpinned by stronger Trading, Investment Banking and Insurance performance. Fee income strengthened by 11% YoY, driven by fees from loans, corporate advisory, brokerage, portfolio management, unit trust management, and commission from bancassurance. QoQ, non-NII fell by around 29% due to lower trading, investment income and the absence of the RM51mn gain from completing the AmGen divestment reported in the previous quarter.

• Yearly, overhead expenses from continuing businesses rose by 9.0% YoY due to higher staff costs, establishment, sales & marketing expenses, as well as admin & general expenses. QoQ, overhead expenses declined to RM493mn due to ongoing disciplined cost management. AMMB’s cost-toincome (CTI) ratio stood at 43% (1HFY23: 45%).

• AMMB reported net impairment amounting to RM203.5mn in 1HFY24 (vs RM266.9mn in 1HFY23) as higher impairment charges in Retail and Business Banking were partially offset by overlay reversals in Wholesale Banking. The annualised net credit cost (excl. overlays) rose to 56 bps vs 17 bps a year ago.

• Elsewhere, the total gross impaired loans climbed to RM2,164mn in 1HFY24 vs RM1,892mn in 1HFY23, driven by Retail and Business banking segments. With that, AMMB’s gross impaired loans ratio (GIL) broadened to 1.65% (1HFY23: 1.52%), while the loan loss coverage ratio slipped to 109.2% (1HFY23: 122.6%).

• Lastly, the financial holding company’s (FHC) CET1 and Total Capital Ratio improved to 12.7% and 16.4%, respectively. The liquidity position remains sound, with the FHC’s Liquidity Coverage Ratio (LCR) at 162.5% (FY23: 149.2%).

Impact

• No change to our earnings estimates.

Outlook

• Management continues to foresee FY24 earnings to be supported by 1) a solid IB pipeline, 2) a more stable NIM for the remainder of the year, and 3) moderate loan growth of 4-5%. Potential downside risks to earnings include higher impairments in the 2H as current credit cost is running ahead of guidance due to additional provisions to cover portfolio vulnerabilities.

Valuation

and Recommendation

• We maintain AMMB’s TP at RM4.30. Our valuation is based on an implied PBV of c. 0.73x based on the Gordon Growth Model. BUY reiterated on AMMB.

Source: TA Research - 23 Nov 2023