• 6MFY25 results were ahead of expectations at 53% of our and consensus FY25 estimates; an interim 10.3sen DPS was announced

• Strong underlying operations and CET1 offers upside for increased dividend payouts

• Raise FY25–27E earnings by c.3% and DPS to 29.5sen. Maintain BUY with a higher TP of RM6.30

Ahead of expectation

AMMB’s 2QFY25 core PATAMI of RM501m (+7% YoY, +0.1% QoQ) brings 6MFY25 core PATAMI to RM1bn (+22% YoY), ahead of our and consensus estimates, at 53% of full-year expectations. The result beat was due to higher-than-expected NIM expansion, which increased 14bps to 1.96%. Reported ROA and ROE stood at 1.02% and 10.1%, respectively. AMMB reported a 10.3sen interim dividend, translating to a payout ratio of 34% (vs. 23% in 6MFY24). Post-dividend CET1 ratio remains strong at 15.3% after FIRB adoption, well above comfortable levels. After raising our earnings on result beat, we maintain our dividend payout ratio at 50%, which implies a full-year DPS of 29.5sen (from 28.6sen).

Sequential NIM expansion

Sequentially, 2QFY25 NIM expanded 7bps to 1.96%, driven by a lower cost of funds due to effective liability management (-10bps), resulting in a 5% QoQ net interest income increase. Despite the expected deposit competition, management has several strategies to keep funding costs low, including shifting towards a higher retail deposit mix and utilising commercial paper programs. 2QFY25 PIOP grew 9% on positive JAWs, mitigating the higher loan loss provisions of RM38m (1QFY25: RM17m), resulting in a flat QoQ PATAMI growth. Asset quality remains benign with a decline in net NPL formation; however, management remains wary of potential deterioration in the household segment following the subsidy removals. The liquidity coverage ratio declined to 144% from 168% in 1QFY25, which management views as closer to optimal.

Raise earnings and GGM-derived TP to RM6.30; reiterate BUY

We raise our FY25–27E earnings by 3%, factoring in higher NIM expansion (+14bps from +10bps). Our GGM-derived TP is higher at RM6.30 (from RM6.00). We view AMMB as attractive, given its undemanding valuations (trading at 0.85x 2025E P/BV against 3-year forward ROE of 9.7%) and potential for a higher dividend payout exceeding 50%. Key risks include higher-than-expected NPLs, prolonged NIM pressure, and elevated funding costs.

Source: Philip Capital Research - 28 Nov 2024