• Maintain BUY, TP rises to MYR6.50 from MYR5.90, 18% upside with c.5% FY26F (Mar) yield. AMMB’s 1HFY25 results slightly beat our and consensus estimates, owing to lower-than-expected credit costs, while continued NIM strength was another highlight. Management’s plan to return more capital to shareholders is also materialising nicely, as its interim DPS was a sharp YoY increase on both an absolute and payout percentage basis.

• Results review. 2QFY25 net profit of MYR500.6m (flat QoQ, +7% YoY) brought the 1HFY25 total to MYR1.0bn (+22% YoY), which in turn made up 54% and 53% of our and Street FY25F PATMI. YoY, income growth was largely driven by NII (+8%) after a resounding 14bps rise in NIM, while non-II slid 7% due to lower treasury & markets income. Opex growth was on par with income growth at 5%, so CIR remained largely flat at 45%. The main profit uplift came from loan loss provisions, which saw a 40% decline. All in, 1HFY25 ROA and ROE stood at 1.1% and 10.2%, compared to 1HFY24’s 0.9% and 9.3%. The group declared an interim DPS of 10.3 sen, translating to a payout ratio of 34% (1HFY24: 6 sen, 23% payout ratio), which is in line.

• Defending NIM position is key. AMMB’s liability management strategies allowed it to bring its cost of funds down by 20bps YTD. As a result, 2QFY25 NIM of 1.96% was up 17bps from the FY24 level. Management notes that further funding optimisation is possible to mitigate margin pressure from the seasonal deposit competition, and it hopes to retain FY25F NIM at the 2Q level. Further out, initiatives to optimise assets (focus on higher-yielding loan segments, eg mid-sized corporates, SMEs, hire purchase) and deposits (more sticky retail CASA) mix could allow for more NIM expansion.

• Asset quality appears stable with GIL ratio at 1.67% (-3bps QoQ, +2bps YoY), while new impaired loans in 1HFY25 eased 28% YoY. LLC (including regulatory reserves) of 102%, with MYR519m in overlay balance, is adequate – so AMMB sees its 20bps credit cost charge in 1HFY25 as being sustainable.

• Other highlights. Loan growth has been rather sluggish YTD (+3% YoY, +1% QoQ), and management aims to end the year’s growth at 3-6%. Key growth drivers will be wholesale and business banking, while the bank is also relooking at the hire purchase space due to its better yields vs residential mortgages. Elsewhere, with the foundation internal ratings-based (F-IRB) approach implemented, AMMB’s CET-1 ratio inched up to 15.3%,from 13.2% in the previous quarter. Management sees 14% as an optimal CET-1 level, and estimates a minor 3-4bps negative impact from next year’s introduction of Basel III reforms on operational RWA.

• We lift FY25-27 earnings by 4%, 3% and 3% as we assume lower credit costs – partially offset by softer loan growth in FY25F. Our TP rises to MYR6.50 (from MYR5.90), and includes an unchanged 4% ESG premium. 

Source: RHB Securities Research - 28 Nov 2024