• Maintain BUY, with new MYR4.60 TP from MYR4.40, 15% upside and c.4% FY23F (Mar) yield. 1QFY23 results were within our expectations. Management remains positive on FY23 outlook, with loan growth to strengthen ahead, NIM to widen further and credit cost to rise but stay within guidance. Stock has re-rated, helped by good progress in capital rebuild and clean-up of oil & gas exposures. We expect share price to grind higher, supported by improving ROEs and its undemanding 0.8x P/BV.

• 1QFY23 in line. Net profit of MYR419.2m (+7% QoQ; +8% YoY) in 1QFY23 – in line (25%) with our, but above (27%) Street FY23F. Reported ROAE improved to 10% (4QFY22: 9.5%), tracking FY23F target. CET-1 was a higher 12.4% vs 12.2% in Mar 2022. Against 4QFY22, net profit grew mainly on higher NII (+5% QoQ) as NIM expanded, and lower operating expenses. Non- II was up a modest 2% QoQ, weighed down by the weak capital markets. See Figure 1 for details on its YoY performance.

• Loan pipeline healthy. In 1QFY23, loan portfolio was flattish QoQ. That said, management kept loan growth guidance at 6-7% for FY23F given good visibility on the pipeline for corporate loans. The rise in bond yields has led to some corporates switching back to the banking system for financing. Its retail and SME loans, which grew 1% YTD, is expected to see sustained momentum given the pent-up demand and recovery in economic activities.

• NIM to improve further over next two quarters. NIM expanded 12bps QoQ to 2.12% in 1QFY23, helped by CASA growth over the past two years. Although CASA deposits fell 8% QoQ, CASA ratio of 32.6% remained higher vs 30% in Dec 2022. NIM is set to improve further on July’s 25bps rate hike and expectations for another 1-2 hikes by end-2022. A 25bps increase in the overnight policy rate (OPR) would add an annualised MYR40m to NII.

• Rise in GILs within expectations. GILs rose 11% QoQ, lifting GIL ratio to 1.55% (Mar 2022: 1.40%). Management is not perturbed as the delinquency flows, on the tapering of loans under relief schemes, are within expectations. Out of prudence, MYR30m in additional overlays for corporate exposures in the construction sector was made in 1QFY23. Loans under payment holiday/repayment assistance (PHRA) have declined to MYR5.5bn (5.5% of gross loans) in July vs MYR6.6bn (6% of gross loans) in May. Management maintained credit cost guidance at 35-40bps for FY23 (1QFY23: 20bps) due to expectations of higher forward looking provisions on upward revisions in OPR under the expected credit loss (ECL) model.

• Earnings and TP. Our forecasts are relatively unchanged as upward revisions in NII are offset by lower non-II and slightly higher credit costs (Figure 5). Our TP is revised to MYR4.60 (from MYR4.40) as intrinsic value is raised to MYR4.60 (from MYR4.48) on refresh of GGM assumptions (Figure 6), while ESG premium/discount is now 0% (from 2% discount). We nudged up AMMB’s ESG score to 3.0 (from 2.90) given its sustained reduction in greenhouse gas (GHG) emissions and expansion of its exclusion list.

Source: RHB Research - 18 Aug 2022