• Keep BUY, new GGM-derived MYR4.80 TP from MYR4.60, 15% upside with 4% FY23F (Mar) yield. AMMB’s 1HFY23 net earnings of MYR854.6m (+21% YoY) are in line with our estimates, but beat the Street projection. For the same period, it is on track to meet most of its full-year targets. With the announcement of AMMB’s inclusion into the FBM KLCI, we believe its share price should continue to trend upwards, premised on well-controlled asset quality and above-industry-average loan growth as well.

• Results review. AMMB’s strong YoY bottomline growth mostly stemmed from lower loan loss provisions, as it booked a 1HFY23 annualised credit cost of 22bps (1HFY22: 54bps). NII grew by a healthy 10% YoY on NIM expansion and greater loan volume. As expected, non-II was a softer 24% YoY post-disposal of AmGeneral Insurance. The group recorded negative JAWs, as opex growth of 4% YoY outpaced flattish operating income growth. Despite this, CIR of 44.6% remains within management’s guidance of <45%. AMMB booked an annualised ROE of 10% at half-time (1HFY22: 9%), and declared an interim DPS of 6 sen, implying a payout ratio of 23%.

• Lending operations tracking full-year target. Gross loans of MYR124bn were up 7.6% YoY (QoQ: +3.5%), tracking slightly ahead of management’s guidance of 6-7%. With deposits growing by a slower 4% YoY (flat QoQ), 1HFY22 NIM expanded 12bps YoY to 2.17%. However, management sees downside risk to the current level – given the increased deposit competition and the upward repricing of fixed deposits at the year-end. Hence, NIM guidance was kept at flat to +5bps YoY.

• Expect higher provisions in 2HFY23. While its 1HFY23 annualised credit cost of 22bps is tracking well below the guidance of 35-40bps, management expects the number to rise in the next quarter. We are not overly concerned, as the rise will mostly be pre-emptive – from a refresh of the expected credit loss (ECL) model to factor in more bearish macroeconomic assumptions. On a segmental basis, AMMB has written off a number of non-performing corporate accounts, but stressed the need to be watchful of retail exposures, particularly mortgages. However, with NPL stable at 1.5% and ample overlays of MYR424m (c.23% of total provisions) for buffers, we think that AMMB’s asset quality remains intact.

• Forecasts and valuation. We keep our forecasts unchanged as results are in line. Our TP rises to MYR4.80 as our 12-month forward BVPS has increased. Our TP incorporates a parity ESG premium as AMMB’s ESG score is in line with the country median. We are encouraged by the progress AMMB has made in cleaning up its lumpy corporate exposures and capital rebuild – with a CET1 level of 12.2%, it is well-positioned to return to dividend payout ratios of 35-40%, implying yields of 3-4%. Also, the stock’s inclusion into the FBM KLCI could act as a short-term re-rating catalyst.

Source: RHB Research - 1 Dec 2022