AMMB Holdings reported a 2QFY25 net profit of RM500.6m (+6.6% YoY, +0.1% QoQ) which was operationally steady on all fronts, with lower funding cost and better non-interest income contributions negating a rise in net provisions. Cumulative 1HFY25 net profit of RM1.00bn (+18.0% YoY) is within our and consensus estimates at 56% and 54% of full-year forecasts respectively. We remain somewhat wary of the still-elevated incidences of newly-impaired loans, though we also note that net loan loss provisions have also been trending lower to suggest healthy recoveries. We are also encouraged to note that margin compressions have troughed, with further operational improvements expected to be reaped from its new Winning Together (WT29) strategic plan. Our earnings estimates are left unchanged together with dividend-based TP of RM5.30 though we lower our call to Neutral with the share price having exceeded our fair valuation.

• Total income (continuing operations) for 1HFY25 gained +3.0% YoY to RM2.41bn, as margin expansions helped lift net interest income higher by +7% YoY to RM1.76bn. Non-interest income (NoII) fell 4% YoY in the absence of a disposal gain (RM51.1m) registered last year, and lower trading gains. By segment, business banking (+16% YoY to RM642m), wholesale banking (+1% YoY to RM600m) and investment banking (+14% to RM197m) underpinned the improvements, though retail banking (-1% YoY to RM952m) weighed.
• Net interest margin (NIM) improved by a further 7bps QoQ to 1.96% in 2QFY25 (1QFY25: 1.89%) largely on account of two-pronged improvements - lower funding costs and better asset yields. Management expects to see further improvements on a business-as-usual basis, underpinned by its strategic initiatives (ie. targeted loans growth), though the current calendar quarter may see the seasonal deposit competition weighing.
• Loans growth remains relatively muted at +2.8% YoY for 1HFY25, with growth continuing to come from business banking (+17% YoY) amid repayments and refinancing via capital markets in the wholesale banking, as well as a realignment in its retail banking portfolio. Sector-wise (Table 1), growth is still underpinned by exposures to wholesale/retail trade (+8.8% YoY) and finance/real estate/business services (+24.2% YoY).
• Asset quality outlook has weakened as net impairment charge was higher in 2QFY25 with forward-looking provisions (RM36m) undertaken for the wholesale, retail and business banking businesses, versus the RM104m reversal in the immediate preceding quarter. Total overlay reserves carried forward remains relatively healthy at RM519m however. Gross impaired loans ratio is 1.67% (1QFY25: 1.70%), with loan loss coverage at 102.1% (1QFY25: 107.6%).

Source: PublicInvest Research - 28 Nov 2024