AMMB Holdings Berhad - Initiation
Tue, 03-Dec-2024 07:25 am
by Samuel Woo • Apex Research

Counter

AMBANK (1015)

Target Price (RM)

5.57

Recommendation

Hold

Investment Highlights

  • Multiple avenues for NIM improvement. Unlike its peers, AMMB recorded an impressive sequential quarter improvement in NIMs in the latest quarter (2QFY25). Management believes their ongoing liability management initiative and loan rebalancing will continue improving NIMs. The Group is prioritising a better NIM profile over asset growth.

 

  • For liability rebalancing, the Group is paring down on pricey non-retail CASA and deposits and turning to the debt market for further drawdowns. For loan rebalancing, AMMB is switching back to higher-yielding loan categories, such as mid-corp SME and hire purchase loans, while moving away from residential mortgages.

 

  • Solid fee income prospects. AMMB has done a good job revamping its fee income-related lines of business, namely its investment banking franchise (which has steadily climbed the ranks) and asset management segment. They have also disposed of their insurance arms, opting for bancassurance deals instead (which provide a more streamlined capital structure). This increases non-interest income contributions to topline.

 

  • AMMB has timed the revamping of its investment banking franchise well with the economic cycle. For now, AMMB sees a strong pipeline of IPOs, which it will likely capture. We feel that there remains much-unexplored potential as the Group pushes into the lucrative mid-corp segment, which offers many cross-selling opportunities into the fee income services. 

 

  • Excellent cost control. AMMB is managing its cost extremely well, boasting extremely low OPEX growth relative to the industry. Management assures that there are further avenues for paring down costs. The Group is already slightly overperforming on a cost/income front (44% level). We think their FY29 target of 40% is plausible (which would make AMMB the third most efficient bank in the industry), given the aggressive growth opportunities AMMB sees in the topline.

 

  • Dividend payouts to improve. AMMB wants to increase its dividend payouts to 50% by FY29. This will increase dividend yields to align with its peers. Recall that they faced capital constraints several years ago, crimping their dividend-paying ability – these have been rectified, and AMMB’s current CET 1 ratio is an extremely healthy 15.3%.

 

  • Although we feel AMMB could technically offer a 50% payout already (it is already issuing 44% payouts), the Group wants to remain prudent with capital, seeing that multiple Basel III stage implementations have yet to occur. Given that 50% seems overly conservative, we think there’s certainly much possibility for upside.

 

Valuation & Recommendation

  • We initiate coverage on AMMB with a HOLD recommendation and a target price of RM5.57 based on an FY26F PBV of 0.86x GGM-PBV valuation. (GGM Assumptions: FY26F ROE of 9.1%, LTG of 3.5%, & COE of 10.0%.) 

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The report is for internal and private circulation only and shall not be reproduced either in part or otherwise without the prior written consent of Apex Securities Berhad. The opinions and information contained herein are based on available data believed to be reliable. It is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered by this report.

Opinions, estimates and projections in this report constitute the current judgment of the author. They do not necessarily reflect the opinion of Apex Securities Berhad and are subject to change without notice. Apex Securities Berhad has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.

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