Review

• AMMB reported higher 3QFY24 results, with net profit rising by 15.6% QoQ and 22.3% YoY to RM543.5mn. YTD reported net profit stood at RM1,365.7mn, a 6.0% improvement compared to 9MFY23. However, excluding tax credit (RM538mn) and one-off charges in 3Q (RM403mn), which combined provided an uplift of RM135mn to net profit, AMMB’s core net profit for the quarter would have amounted to RM408mn, or around RM1,230mn YTD.

• Despite the one-offs, AMMB's results came within expectations, with core net profit accounting for around 72% of our full-year forecast. The group’s annualised ROE stood at 10.0% vs 9.9% a year ago.

• Including Islamic Banking Operations, the 9MFY24 net interest income (NII) declined by 7% YoY. The net interest margin (NIM) contracted by 37 bps YoY to 1.79% due to higher funding costs as deposits repriced while asset yields remained stable. However, NIM further slipped by 3 bps QoQ. Meanwhile, YTD loans were little changed as the 3% rise in Retail loans, such as Mortgages, Cards and Auto Financing, were muted by contractions in Wholesale Banking (due to large loan repayments) and Personal Financing. Loans in Business Banking remained healthy, rising by 5% YTD on the back of increased customer activity.

• Meanwhile, customer deposits grew by 4% YTD to RM135.9bn (stable QoQ), with time/fixed deposit accelerating by 11% YTD. CASA deposits, however, declined by 6% YTD to around RM45.8bn, translating to a CASA ratio of 33.7% vs 37.4% in FY23.

• Total non-NII continued to widen by a healthy 26% YoY, underpinned by higher fee-based income, investment income and trading gains. Fee income strengthened by 9% YoY, driven by fees from loans, corporate advisory, brokerage, portfolio management, unit trust management, and commission from bancassurance.

• Yearly, overhead expenses from continuing businesses rose by 5.0% YoY due to higher staff costs, establishment, sales & marketing, IT expenses, as well as admin & general expenses. QoQ overhead expenses also rose 6% to RM522mn. AMMB’s cost-to-income (CTI) ratio stood at 44.4% (9MFY23: 42.2%).

• AMMB reported net impairment amounting to RM309mn in 9MFY24 (vs RM416mn in 9MFY23). QoQ, net impairment rose to RM106mn from RM13mn in 2Q. Including credit impairment overlays and intangible assets impairment, the reported net impairment charge was higher at RM546mn. With that, the annualised net credit cost (incl. overlays) rose to 67 bps vs 36 bps a year ago.

• Elsewhere, the total gross impaired loans climbed slightly to RM2,103mn in 9MFY24 vs RM2,041mn in 9MFY23, driven by Retail and Business

banking segments. Despite that, AMMB’s gross impaired loans ratio (GIL) softened to 1.60% (9MFY23: 1.62%) due to improved impaired loans in the Wholesale segment. The loan loss coverage ratio stood at 110.7% (9MFY23: 107.6%).

• Lastly, the financial holding company’s (FHC) CET1 and Total Capital Ratio improved to 13.38% and 16.64%, respectively. The liquidity position remains sound, with the FHC’s Liquidity Coverage Ratio (LCR) at 183.7% (FY23: 149.2%).

Impact

• We tweaked our FY24/25/26 net profit forecast to RM1,793/1,834/1,964mn from RM1,707/1,883/2,114mn.

Outlook

• AMMB delivered decent results despite the ongoing margin compression. Non-NII and fee income continued to improve, cushioning the weaker NII performance. We foresee the remainder of FY24 earnings to be supported by 1) a solid IB pipeline, 2) a more stable NIM in 4Q, and 3) moderate loan growth of 4-5%. As highlighted earlier, the potential downside risks to earnings include higher impairments, as current credit cost continues to run ahead of guidance due to additional provisions to cover portfolio vulnerabilities.

Valuation and Recommendation

• Rolling valuations forward to FY25, we raise AMMB’s TP to RM4.60 from RM4.30. Our valuation is based on an implied PBV of c. 0.73x based on the Gordon Growth Model. With that, we upgrade AMMB to HOLD from sell, given the wider risk-reward potential.

Source: TA Research - 27 Feb 2024