ABMB's 1HFY25 net profit (+9%) and dividends met expectations with loans growth hovering at the top quartile between its peers, though attributed to its lower base. While we had previously championed ABMB for its large cap-comparable ROE and dividends, the recent share price rally could have sufficiently reflected these merits. Maintain our GGM-derived PBV TP of RM5.00 but downgrade to MP (from OP).

1HFY25 within expectations. ABMB's 1HFY25 net profit of RM366.6m made up 48% of our full-year forecast and 49% of consensus full-year estimates. The 9.5 sen interim dividend (40% pay-out) declared was also within expectation, in line with our anticipated 25.0 sen payment (50% pay-out) for the full-year.

YoY, 1HFY25 net profit increased by 9%. NII (+16%) growing in tandem with the enlarged loans base (+15%, +11% CY-YTD) while NIMs only moderately declined by 1 bps, underpinned by higher funding cost. Meanwhile, NOII (+11%) saw the most support from treasury and investment income. The higher top line helped dilute CIR to 46.5% (-1.5 ppt) in spite of a 12% increase in operating cost.

However, this was mitigated by gross credit cost surging to 49 bps (+19 bps) owing to business accounts in the construction and steel space, requiring an injection of RM33.1m in its overlays.

QoQ, 2QFY25 net earnings grew by 8% but with more support attributed to NOII (+63%), which mainly came from derivative investment income surging amid high market volatility during the quarter. We noted that NIMs improved by 4% from rationalising funding costs.

Highlights. Following ABMB's intent to expand its presence in the southern region (i.e. Johor), the group aims to look beyond data centres which we believe would cater to its wider supply chain. This caters to the smaller enterprises which are more aligned with the group's target SME clientele.

Though new troubled accounts arose, which prompted higher provisions in the recent quarter, GILs for the group looks towards further improvement including the problematic AOA portfolio as repayments pick up. Headline guidance for FY25 are maintained for now, with no areas to call out as probable to disappoint.

Though its 15% loans growth appears to beat the group's 8%-10% target, the capital needed to fund this in the long-term may strain ABMB's CET-1 ratio. Unless the group is comfortable with a lower base for its reserve, we anticipate some easing in loans acquisition in 2HFY25 or it may resort to a pay-out ratio lower than our anticipated 50% (in line with 3-year historical) to compensate.

Forecasts. Post results, our FY25F and FY26F numbers are tweaked from model housekeeping as we incorporate 2QFY25's numbers.

Downgrade to MARKET PERFORM (from OUTPERFORM) with a TP of RM5.00. Our TP is based on an unchanged GGM-derived CY25F PBV of 0.93x (COE: 10.5%, TG: 3%, ROE: 10%) with a 5% premium to our TP based on our 4-star ESG rating appraisal, warranted by the stock's strong green financing pipeline and its sustainable financing policies.

As trading valuations for the stock has caught up, we believe its risk-reward has become more balanced. Similarly, previous dividend prospects of mid-7% are now diluted to mid-5%. Given the lower incentive, the perceived higher earnings risk tied to ABMB's heavy SME exposure may be more pronounced to investors.

Risks to our call include: (i) higher-than-expected margin squeeze, (ii) lower-than-expected loans growth, (iii) worse-than-expected deterioration in asset quality, (iv) slowdown in capital market activities, (v) unfavourable currency fluctuations, and (vi) changes to OPR.

Management Guidance

Source: Kenanga Research - 29 Nov 2024