Review

• AMMB’s FY24 net profit of RM1,868mn (FY23: RM1,709mn) was boosted by one-off tax credit. However, the group’s reported PBT was 19% lower YoY at RM1,745mn vs RM2,144mn a year ago due to one-off charges of RM403mn recognised in the 3Q. Including the one-offs and tax credits, AMMB's net profit came within expectations. The group’s ROE stood at 10.0% vs 9.8% a year ago.

• A final dividend of 16.6 sen per share has been proposed. Total dividends for the year would amount to 22.6 sen per share, representing a dividend payout ratio of 40% (FY23: 35%).

• Including Islamic Banking Operations, the FY24 net interest income (NII) declined by 7% YoY. The net interest margin (NIM) contracted by 28 bps YoY to 1.79% due to higher funding costs than asset yields. On a positive note, NIM was steady at 1.79% QoQ. Meanwhile, FY24 loans grew by a modest 3% YoY, as the 2% 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 10% YoY on the back of increased customer activity.

• Meanwhile, customer deposits grew by 9% YoY to RM142.4bn (+4.8% QoQ), with time/fixed deposit accelerating by 9.9% YoY. CASA deposits also grew at a more robust pace of 8% YoY to around RM52.8bn, translating to a CASA ratio of 37.1% vs 37.4% in FY23.

• Total non-NII continued to widen by a healthy 15% YoY, underpinned by higher fee-based income, investment income and trading gains. Fee income strengthened by 19% YoY, driven by broad-based growth from Wholesale Banking (WB) (+43% YoY), Investment Banking (IB) (+17% YoY) and Retail Banking (RB) (+11% YoY).

• Yearly, overhead expenses from continuing businesses rose by 2.6% YoY due to higher staff costs, establishment, sales & marketing, IT expenses, as well as admin & general expenses. QoQ overhead expenses also rose by 1.5% to RM530mn. AMMB’s FY24 cost-to-income (CTI) ratio stood at 44.6% (FY23: 43.6%).

• AMMB reported net impairment amounting to RM330mn in FY24 (vs RM467mn in FY23). WB overlay reversals partially offset higher impairment from RB, BB and IB. With that, the FY24 net credit cost (incl. overlays) improved to 27 bps vs 32 bps a year ago. Excluding recoveries, AMMB’s gross credit cost rose to 74 bps from 56 bps in FY23.

• Elsewhere, the total gross impaired loans climbed to RM2,236mn in FY24 vs RM1,896mn in FY23, driven by RB, BB and WB segments. With that, AMMB’s gross impaired loans ratio (GIL) deteriorated to 1.67% (FY23: 1.46%). The loan loss coverage ratio reduced to 109.5% (FY23: 127.7%).

• Lastly, the financial holding company’s (FHC) CET1 and Total Capital Ratio stood at 13.0% and 16.3%, respectively. The liquidity position remains sound, with the FHC’s Liquidity Coverage Ratio (LCR) at 164.6% (FY23: 149.2%).

Impact

• Incorporating the FY24 results, we tweaked our FY25/26 net profit forecast from RM1,834/1,964mn to RM1,802/1,954mn. We project FY27 net profit to grow by 9.4% YoY to RM2,137mn.

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 FY25 earnings to be supported by 1) a solid IB pipeline, 2) a more stable NIM, and 3) moderate loan growth of around 5%. The potential downside risks to earnings include higher impairments and weaker-than-expected corporate loans.

Valuation and Recommendation

• We maintain AMMB’s TP at RM4.60. Our valuation is based on an implied PBV of c. 0.74x based on the Gordon Growth Model. BUY reiterated.

Source: TA Research - 28 May 2024