AMMB Holdings Berhad has bounced back as its net profit for the first half of the financial year came within expectations, and it has recorded improved net interest margin (NIM) in the second quarter ended Sept 30, 2023 (2Q24).
According to CGS-CIMB, the group’s 1HFY3/24 net profit is at 48% of its full-year forecast but above street estimate at 51% of Bloomberg consensus’ estimates while the interim DPS of 6 sen is regarded as in line.
“The group’s 1HFY24 net profit inched up by 1.3% YoY, as 26.2% YoY growth in non-interest income was largely offset by the 7.3% YoY drop in net interest income and 81.4% YoY surge in loan loss provisioning (LLP),” it said in its research note today (Nov 23).
Thus, the research house reiterate its ADD rating on AMMB given its attractive valuation of 7x CY24F P/E, which is one of the lowest in the sector.
It also maintains its FY24-26F EPS forecasts but raise its DDM-based TP from RM4.39 to RM4.86 (cost of equity: 10.2%; terminal growth rate: 4%) as we roll over our TP to end-CY24F.
“Potential re-rating catalysts include our expected pick-up in loan growth in the 2HFY24F, and potential partial write-back of management overlay (which stood at RM314 million at end-Sep 23).
“Potential downside risks include material deterioration in loan growth and asset quality,” it added.
CGS-CIMB lauds the ability of AMMB to improve its net interest margin (NIM) by 6 basis points QoQ in 2QFY24, following two consecutive quarters of declines, as it thinks most banks would experience weak margins in the quarter.
“We were even more impressed that this was achieved despite a 11 basis points QoQ increase in 2QFY24 cost of fund. The stronger NIM in 2QFY24 was primarily due to the 17 basis points QoQ rise in gross yield, partly coming from the hike in overnight policy rate last May.
“In our view, this also culminated from the bank’s push to grow its higher-yielding loans, such as SME loans. The NIM expansion helped AMMB increase its 2QFY24 net interest income by 7.7% QoQ, despite a 3.9% QoQ rise in total deposits,” it said.
It added that it is projecting a net profit of RM921 million for AMMB in 2HFY24F, representing a growth of 8.6% hoh (+4.6% YoY).
“We believe this is achievable as this reflects an average net profit of RM460.5m in 3Q-4QFY24, which is lower than 2QFY24’s net profit of RM469.9m. In addition, it would be supported by our expectation for a recovery in loan growth and stable credit costs, in line with the bank’s guidance.”
