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Maintain BUY, new MYR5.50 TP (from MYR4.90), 26% upside and c.6% FY25F (Mar) yield. AMMB’s strategy day event yesterday provided a glimpse into the group’s 5-year plan – in summary, it intends to shift its funding mix towards lower-cost retail deposits for greater profitability, and also to double absolute DPS by FY29. While execution will be a challenge, the targets – if achieved – could warrant a re-rating for the counter.
Financial aspirations. Over the next five years, AMMB’s priorities are to: i) Improve dividend payouts to c.45 sen by FY29 (ie 15% CAGR); ii) improve operational efficiency and bring CIR down to 40% (FY24: 45%); and iii) drive profitability, with a target to raise ROA to 1.1% (FY24: 1.0%, translates to c.11-12% ROE). Another key lever to boost profitability will be to rejig the group’s funding mix by pivoting away from higher-cost wholesale deposits to lower-cost and “stickier” retail ones. Other 5-year CAGR targets include income of 8%, loans and deposits of 6%, and PATMI of 8%.
Retail banking – pivoting from net lender to net funder of the group. Over the next five years, the group envisions its retail banking division to be a gatherer of lower-cost deposits for it to funnel towards the higher-yielding mid-corporate and SME segments. Consequently, retail loans (primarily mortgages) will take a backseat due to their lower-yield nature. We gather that the division’s customer acquisition strategies will be focussed towards the affluent and mass-affluent segments, which will be offered segment- specific wealth management solutions among others.
Non-retail – focus on mid-corporates and SMEs. AMMB sees opportunities predominantly in supply chain financing. Geography-wise, aside from the Klang Valley, AMMB is also eyeing the northern peninsular region (electrical & electronics and related), the southern peninsular region (data centres and infrastructure), as well as East Malaysia (enterprise banking).
Are these targets achievable? Income growth will be the key area of focus, as its 5-year 8% CAGR target looks rather steep, when compared to its FY19- 24 CAGR of 3%, while loan growth levels are comparatively similar. As such, NIM and non-II will have to do most of the heavy lifting. While retail deposits make for a hotly contested space, we think AMMB’s offerings could appeal to its target segments, especially with the right distribution strategies – we regard its plan of tapping into bancassurance partners’ agency forces for wealth distribution as interesting. Separately, we think the target of doubling absolute DPS in 5 years is achievable given existing capital levels (post-F-IRB implementation), and more so with a dividend reinvestment plan.
We raise FY25-27F net profit by 3-6% as we assume greater NIM expansion and loan growth. We also raise our DPS assumptions. Our new, higher TP of MYR5.50 includes a 4% ESG premium.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....