• Although AMMB’s 1QFY3/25 net profit accounted for 26.5% of our full-year forecast, we deem it in line in anticipation of weaker quarters ahead.

• AMMB delivered on its guidance for NIM expansion, which rose by a commendable 10bp qoq and 13bp yoy in 1QFY25.

• Reiterate Add, given AMMB’s attractive valuation of 8.3x CY25F P/E (vs. the sector’s 10.6x) and potential write-back in management overlay.

1QFY25 NP within expectations; expecting weaker quarters ahead

Although AMMB Holdings’ 1QFY3/25 net profit (NP) accounted for 26.5% of our full-year forecast, we deem the results in line in anticipation of weaker quarters ahead. This is premised on our view that the low credit charge-off rate of 11bp in 1QFY25 will not be sustainable as it is significantly below the bank’s guidance of a more sustainable 30bp. We regard 1QFY25 NP as above street estimates, at 28.4% of Bloomberg consensus’ estimates.

NIM expansion drove 1QFY25 net interest income growth

At its previous results conference call on 27 May 24, AMMB guided for an expansion in net interest margin (NIM) from 1.79% in 4QFY24 to c.1.9% in 1QFY25. It delivered on this, as its NIM rose to 1.89% in 1QFY25. We see the 10bp qoq (and 13bp yoy) expansion in NIM in 1QFY25 as commendable. This lifted its 1QFY25 net interest income growth to an impressive 9.8% yoy, despite a weak loan expansion of only 2.9% yoy.

Expecting flattish (yoy) NP in 2QFY25F

We estimate AMMB’s NP at c.RM460m in 2QFY25F, translating into a 7-8% qoq decline (as we do not expect 1QFY25’s low loan loss provisioning to be sustainable). The 2QFY25F NP should not be far off from 2QFY24’s NP of RM469.9m, in our view.

Raising target price

We maintain our FY25-27F EPS forecasts. However, we raise our target price (TP) for AMMB from RM5.06 to RM5.95 as we withdraw the 15% discount we imputed to the DDM value to arrive at our TP (COE of 9.9%; terminal growth rate of 4%). As stated in our 21 Apr 2020 report, we pegged our TP to a 15% discount to the DDM value to factor in credit risks (partly from Covid-19). We do not see the need for a discount now as we expect credit risks for banks to be lower in light of stronger economic growth, while AMMB has built up a total management overlay of RM541m at end-Jun 24.

Reiterate Add on AMMB

We retain our Add rating on AMMB given its attractive 8.3x CY25 P/E, among the lowest in the sector and below the sector’s average of 10.6x. Re-rating catalysts include an uptick in NIM in FY25F and potential partial write-back of management overlay. Potential downside risks include material deterioration in its loan growth and asset quality.

Source: CGS-CIMB Research - 21 Aug 2024