Review

• AMMB’s 1HFY25 net profit grew 18% YoY to RM1,000.8mn, underpinned by higher net income, lower impairment charges and higher provision reversals. Results exceeded our expectations, with the YTD net profit at 56% of our full-year estimate. The slight variance was due to the betterthan-expected impairment charges and net interest margin (NIM). The group’s annualised ROE expanded to 10.1% vs 9.3% a year ago.

• A higher interim dividend of 10.3 sen per share (1HFY24: 6 sen per share) has been declared, translating to a payout ratio of 34% vs 23% a year ago.

• Including Islamic Banking Operations, the 1HFY25 net interest income (NII) expanded by 7% YoY and 5% QoQ, underpinned by NIM, which strengthened by 14 bps YoY (+7 bps QoQ) to 1.93% due to easing funding costs (-14 bps YoY) while asset yields (-3 bps YoY) held steady.

• 1HFY25 loans remained little changed YTD at RM134.5bn as more robust loan demand from Business Banking (+7% YTD) was muted by management’s efforts to derisk Retail Banking (-1% YTD) and reset Wholesale Banking (-6% YTD). Meanwhile, Mortgage loans rose by 2% YTD.

• Customer deposits declined by 5% YTD to RM136.3bn. While the time/fixed deposit rose slightly YTD to RM90.2bn, CASA deposits fell by 13% YTD to around RM46.1bn, translating to a CASA ratio of 33.8% vs 37.1% in FY24. Management noted that deposits were held deliberately steady to help improve the cost of funds.

• Total non-NII declined by 4% YoY (+3% QoQ) due to non-repeat of AmGen divestment gain of RM51mn and lower trading and securities gain, but this was partially offset by higher fee income. By segment, the decline in non-NII from Wholesale Banking (WB) (-30% YoY) was cushioned by increases in Investment Banking (IB) (+14% YoY) and Retail Banking (RB) (+15% YoY) due to Wealth Management and Cards.

• Yearly, overhead expenses rose 5% YoY due to higher staff costs, sales & marketing, as well as admin & general expenses. Due to negative JAWs, AMMB’s 1HFY25 cost-to-income (CTI) ratio climbed to 44.0% (1HFY24: 43.0%).

• AMMB reported net impairment amounting to RM57mn in 1HFY25 (vs RM204mn in 1HFY24) due to improved impairment charges in retail and business banking, along with higher provision reversals in WB. With that, the 1HFY25 gross credit cost (excl. recoveries) improved to 39 bps vs 54 bps a year ago. Including recoveries, AMMB’s net credit cost eased to 20 bps from 34 bps in 1HFY24. AMMB’s total overlay reserves currently stand at around RM519mn compared to RM541mn in the previous quarter.

• Elsewhere, the total gross impaired loans climbed slightly to RM2,239mn in 1HFY25 vs RM2,164mn in 1HFY24, driven by RB and WB segments. AMMB’s gross impaired loans ratio (GIL) deteriorated slightly to 1.67% (1HFY24: 1.65%). The loan loss coverage ratio also reduced to 102.1% (1HFY24: 109.2%).
• Lastly, the CET1 Ratio jumped to 15.3% from 13.2% in 1QFY25, spurred by stronger 1H profit generation and foundation internal rating-based (FIRB) adoption, which management noted provided a 1.8%-point uplift. The liquidity position remains sound, with the Liquidity Coverage Ratio (LCR) at 143.5% (FY24: 164.6%) and the Net Stable Funding Ratio (NSFR) at 109.3%.

Impact

• Adjusting our earnings forecast to align with AMMB’s 6M results performance, we raised FY25/26/27 net profit to RM1,980/2,142/2,336mn from RM1,802/1,954/2,137mn, respectively.

Outlook

• AMMB delivered a robust performance in 1H, driven by improved NIM. Asset quality remained solid, supported by sufficient loan loss coverage and overlay buffers. AMMB has successfully strengthened its balance sheet, which is evident by improving capital ratios and raising dividend payout. Looking ahead, we expect FY25 earnings to be bolstered by a strong investment banking pipeline, a more stable NIM, moderate loan growth of approximately 5%, and continued provision write-backs. However, potential downside risks include weaker-than-expected corporate loan performance.

Valuation and Recommendation

• We raise AMMB’s TP from RM5.60 to RM6.10. Our valuation is based on an implied PBV of c. 0.97x based on the Gordon Growth Model. With that, we reiterate our BUY recommendation on AMMB.

Source: TA Research - 28 Nov 2024