PETALING JAYA: AMMB Holdings Bhd will be looking to rebuild its net interest margin (NIM) after a 28 basis points (bps) year-on-year compression in financial year 2024 (FY24).
In a post-results note to clients, RHB Research said the banking group has identified several initiatives to lower its cost of funds in FY25.
These include raising the number of current and savings accounts. It also plans to run a tighter loan-to-deposit ratio of up to 96%, from 94% as of end-March 2024, plus diversify its funding sources.
“We learnt that these efforts have had an immediate impact on NIM as management reported that cost of funds in April 2024 saw an improvement from the fourth quarter of FY24 (4Q24) level,” said RHB Research.
In FY25, the bank’s management also aims for loan growth at the mid-single-digit level.
According to RHB Research, AMMB has a robust pipeline to support such growth levels, with loans related to infrastructure projects to be drawn down gradually in tandem with the execution of the projects.
On the other hand, the banking group said it is keeping a close watch on household loans, given pressure from the cost of living is slowing growth in that segment.
In 4Q24, AMMB’s headline net profit came in at RM477mil, bringing the full-year total to RM1.87bil. Loan growth for FY24 was relatively soft at 3% due to lumpy corporate repayments, but its return on equity of 10% met management’s target for the year, noted analysts.
RHB Research, which is keeping a “buy” call on the stock, said AMMB remains a sector top-pick for its dividend upside potential following the completion of its capital-rebuilding exercises.
The research house also does not foresee issues with asset quality although the group’s gross impaired loans (GIL) ratio inched up seven bps quarter-on-quarter to 1.67%, largely due to one corporate account entering impaired status.
But this had been regularised after the closing period.
“While household GILs were also on the rise, the group remained secure with its position as it had built up provision buffers for the retail book in the previous quarter,” the research firm added.
Meanwhile, CGS International Research (CGSI Research) said AMMB’s valuation at 7.2 times calendar year 2025 price-earnings is attractive versus the sector’s average of 9.7 times and is one of the lowest among peers.
Re-rating catalysts for the stock include an uptick in NIM in FY25 and potential partial write-back of its management overlay, which stood at RM502mil as of end-March 2024.
“We maintain our FY25-FY26 earnings per share forecasts for AMMB. However, we raise our FY25-FY26 dividend per share forecasts by 14.3% to 23 sen or 24 sen as we increase our dividend payout ratio assumption from 35% to 40%, in line with the level in FY24.
“This pushes up our dividend discount model-based target price from RM4.86 to RM5.06,” said CGSI Research in a report, reiterating its “add” call on the banking stock.