PublicInvest Research

AMMB Holdings Berhad - Stronger Start

PublicInvest
Publish date: Wed, 21 Aug 2024, 06:14 PM
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An official blog in I3investor to publish research reports provided by PublicInvest Research team.

All materials published here are prepared by Public Investment Bank Berhad. For latest offers on Public Invest trading products and news, please refer to: https://www.publicinvestbank.com.my/pbswecos/default.asp

PUBLIC INVESTMENT BANK BERHAD (20027-W)
9th Floor, Bangunan Public Bank
6, Jalan Sultan Sulaiman, 50000 Kuala Lumpur
T 603 2031 3011 | F 603 2272 3704 | Dealing Line 603 2260 6718

AMMB Holdings started off the new financial year on stronger footing, with a 1QFY25 net profit of RM500.2m (+32.2% YoY, +5.0% QoQ) reported. Slightly ahead of our and consensus estimates at 28% of full-year forecasts, the discrepancy is largely on account of notably lower provisions (-93.6% YoY, -39.6% QoQ) due in part to write-backs, as improvements in NIMs also helped. Of some concern is the still-elevated incidences of newly-impaired loans, though tempered by better recoveries. We continue to note some encouraging developments in its expected numbers going forward nonetheless – improvements in net credit costs despite recent worries, and likely margin expansions. We remain encouraged over AMMB’s long-term prospects, reflected by these steady improvements on the operational front as the Group embarks on a new strategic journey under its Winning Together (WT29) plans. Our earnings estimates are left unchanged though we raise our dividend-based TP further to RM5.30 as we make adjustments to our valuation variables (i.e. risk premiums). We retain our Trading Buy call, with banking-related stocks attracting strong investor interest in recent times.

  • Total income (continuing operations) for 1QFY25 inched higher by 2.0%YoY to RM1.18bn, as a ~6% YoY improvement in net interest income due tomargin expansions managed to mitigate a ~7% YoY drop in non-interestincome (NoII) due to lower trading and securities gains. By segment, businessbanking (+18% YoY) and retail banking (+2.0% YoY) drove gains as wholesalebanking (-20% YoY) weighed.
  • Net interest margin (NIM) improved by 10bps QoQ to 1.89% in 1QFY25 (4Q:1.79%), due to lower cost of funds as asset yields remained stable (Figure 1).Steadier asset yields (on improved and targeted loans growth) and relativelyhealthy CASA ratio of >30% should see NIMs at ~1.85% going forward.
  • Loans growth remained subdued at +2.9% YoY in 1QFY25, with growthcontinuing to come from business banking (+17% YoY) amid repayments inwholesale banking (-10% YoY). Sector-wise (Table 1), growth is underpinnedby exposures to wholesale/retail trade (+7.4% YoY) and finance/realestate/business services (+14.9%), as management eases off on building upthe mortgage book due to limited uplifts on margins.
  • Asset quality improvements are encouraging, with management (confidentenough and) continuing to make reversals on past provisions during thequarter – forward looking (RM104m, 4QFY24: RM68m), despite formation ofnewly impaired loans remaining high (+RM540m) during the quarter. Totaloverlay reserves carried forward is slightly higher at RM541m, with RM39madded on during the quarter. Gross impaired loans ratio is 1.70% (4QFY24:1.67%), with loan loss coverage slightly lower at 107.6% (4QFY24: 109.5%).

Source: PublicInvest Research - 21 Aug 2024

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