AMMB - a Golden Opportunity; Stay BUY

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+0.55 (13.25%)
  • Maintain BUY and MYR4.70 TP, 7% upside with 5% FY25F (Mar) yield. AMMB may announce its 3QFY24 results on 26 Feb. The highlight should be a MYR538m tax credit that would allow the bank to frontload costs and close any gaps in provisions. We continue to like AMMB for its undemanding valuation (0.7x P/BV vs 8-9% ROE) and potential dividend and loan growth upside – its target loan segments of construction and manufacturing are direct beneficiaries of domestic development policies.
  • Flat NIM, pick-up in loan growth. The bank is expecting more business loan drawdowns in 2HFY24, which should allow it to meet its 4-5% YoY target by FYE (1HFY24: +1% annualised). AMMB’s expectations are backed by good QoQ business loan growth of +10% (annualised) at the banking system level. On the other hand, management sees NIM hovering at 1.8% in 2HFY24 (ie flat from the 2Q level). All in, NII in 3QFY24 should pan out to be flat-to- stronger QoQ.
  • Non-II – potentially stronger? AMMB’s fee income grew by a decent 10% YoY in 1HFY24, but its trading performance was more muted as the bank held back on cashing out on its in-the-money trades. Given favourable QoQ bond yield movements, AMMB’s trading income could accelerate and provide further earnings support.
  • MYR538m tax credit – an opportunity to close any gaps. AMMB is expected to book a MYR538m tax credit receipt in 3QFY24, which in itself would exceed management’s guidance for over MYR400m net profit per quarter. As such, the bank has plans to frontload some opex items (mostly tech amortisation), and is also looking at incurring some pre-emptive provisions, as its LLC (excluding regulatory reserves) is below 100%. We do not expect the bank to pay out any special dividend – instead, we think any excess will be channelled towards raising its dividend policy for sustainably higher payouts in the future.
  • Asset quality to hold up. Management believes NPL formation for mortgages has peaked, and should be stable moving forward. On the business side, save for one account from the automotive sector that became impaired (well collateralised), there should be no major surprises. Management remains watchful overall, albeit particularly on the construction (of residential property) sector.
  • What we are looking out for. With the end of its Focus 8 strategy in sight and a new group CEO at the helm, we would like to hear more on AMMB’s new dividend policy. Previous indications are that the bank is aiming for absolute DPS growth, and to be a 6%-dividend yield stock, which would likely require payouts beyond its 35-40% policy. Elsewhere, further clarity on its overlay utilisation plans would also be helpful. As at Sep 2023, the management overlay balance stood at MYR314m, which is equivalent to 17% of provisions.

Source: RHB Research - 20 Feb 2024

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