Maintain BUY. AMMB’s small group breakfast meeting on Friday was fruitful, and further reinforced our conviction towards the stock as our top pick in the banking sector. What do we like about the group? Its sustainable ROEs as well as its capacity to drive earnings much faster by focusing efforts on a) building up its SME franchise, b) lowering funding costs, c) plucking low hanging fruit from the insurance division and d) keeping costs under control. MYR9.10 TP, pegged to a CY14 P/BV of 1.9x.

Corporate lending pipeline holding up. AMMB saw corporate lending growth of 16% YoY in 1Q FYE3/14, which bucked the industry's declining trend. ETP related projects have not picked up but management is seeing non-ETP related corporate loan growth from sectors such as Oil & Gas, Plantations and Property. The corporate loan pipeline is still holding up, though not surprisingly, there has been heightened cautiousness in recent weeks.

DCM to fare better. AmGroup's debt capital market (DCM) division is expected to do better this year vs 2012. Todate, it ranks number 1 in bond underwriting this year but competition is expected to pick up. Still, it expects to garner a 15-20% market share of market volumes this year (2012: 17%) and to maintain its Top 3 ranking for the year.

SME will be the next priority segment. Management acknowledges that SME is an area that it is lacking in and has started to give this greater emphasis, in collaboration with ANZ. What is positive is that ANZ's strength is in driving the liabilities side of the business, which gives AmGroup a more holistic approach to managing this segment.

CASA to continue expanding. CASA has since risen to over 20% of total deposits vs the industry's 26% and trying to further close the gap will take much effort. However, there are strategies in place, such as focusing on the liabilities side of the SME business as we mentioned above, to sustain an above-industry CASA growth pace.

Source: Maybank Research - 26 Aug 2013