AMMB - An Opportunity Well Grasped; Stay BUY

Date: 
2024-02-27
Firm: 
RHB-OSK
Stock: 
Price Target: 
4.80
Price Call: 
BUY
Last Price: 
4.24
Upside/Downside: 
+0.56 (13.21%)
  • Keep BUY, new MYR4.80 TP from MYR4.70, 11% upside, c.5% FY25F (Mar) yield. AMMB’s core 9MFY24 results met expectations. As expected, the bank utilised its MYR538m tax credit in a kitchen-sinking exercise, chiefly to further solidify asset quality. We reiterate our rating on the stock, premised also on growth and dividend upside, as well as its attractive valuation.
  • Results review. 3QFY24 headline net profit of MYR543.4m (+20% YoY, +16% QoQ) brought the 9M total to MYR1.39bn (+6% YoY). For the 9M, NII dipped 9% YoY on the back of a 37bps YoY NIM compression, though non-II strength (+19% YoY) mitigated the negative impact. Opex decreased 1% YoY from a high base, as collective agreement adjustments were made in 4QFY23. 3QFY24 saw a slight 3bps NIM compression QoQ as the May 2023 Overnight Policy Rate hike was reflected in repriced fixed deposits. However, non-II surged 17% QoQ on stronger fee and trading income.
  • A quarter for kitchen-sinking. As flagged earlier, AMMB recorded a MYR538m tax credit recognition in 3QFY24, which the group used to incur several one-off expenses amounting to MYR520m. These include MYR112m in non-financial impairments (dated computer software), MYR80m in provisions for restructuring expenses, and MYR328m in pre-emptive credit provisions for the bank’s retail portfolio. These one-off expenses point to potentially more benign credit and operating costs incurred moving forward. Excluding these expenses from the financials yields a core PATMI of MYR1.26bn for the 9M, in line with our and Street’s full-year core estimates.
  • Improved resilience in the retail book. Management thinks retail NPLs are still on the rise, and therefore increased its portfolio LLC to 100% (retail LLC excluding the provisions would have been 86%), and group LLC to 111% (2Q24: 96%). Moving forward, the group plans to de-emphasise loan growth in residential mortgages due also to less favourable margins, and instead focus on the SME and mid-sized corporate segments.
  • Other briefing highlights. Loans growth should see a pick-up in CY24, particularly from the corporate segment, as drawdowns should occur gradually with the execution of public infrastructure projects. On non-II, management does not expect the strong 3Q trading performance to repeat, but the QoQ dip should be offset by a NII rebound, driven by loans growth and stable NIM. A healthy CET-1 ratio of 13.4%, up from 12.7% in 2Q, puts the bank in a position to pay out at least 35-40% of earnings as dividends by the financial year-end.
  • Forecasts and TP. Our FY24F forecasts are adjusted to incorporate the one- off expenses. At the core level, we lowered assumptions on NIM, non-II, and associate contributions. Our TP, however, is lifted to MYR4.80 (inclusive of a 0% ESG premium/discount), to reflect AMMB’s improved asset quality.

Source: RHB Research - 27 Feb 2024

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