Comprehensive Analysis of AMMB Holdings and Sector Insights

Date of Report: February 4, 2025

Broker: Maybank Investment Bank Berhad

AMMB Holdings: Maintaining a Healthy Growth Trajectory

The report from Maybank Investment Bank Berhad provides a detailed analysis of AMMB Holdings (AMM MK), highlighting its financial health and strategic decisions. AMMB recently called off the proposed disposal of its 50:50 joint ventures, AmMetLife Insurance (AML) and AmMetLife Takaful (AMLT), to Great Eastern Life Assurance and Great Eastern Takaful. While this development may have raised questions, the decision comes as no surprise, given the lack of progress on the deal since its proposal in October 2023.

Capital Position Remains Strong

The cancellation of the disposal is expected to have a negligible impact on AMMB’s capital base. Initially, the disposal could have enhanced AMMB’s Common Equity Tier 1 (CET1) capital by approximately 50 basis points (bps). However, with the reduced impact of Basel III regulations, AMMB’s CET1 ratio remains robust at 15.3% as of September 2024. This solid financial position reduces the urgency for AMMB to offload its insurance units in the near term.

Minimal Contribution to Group Earnings

In the fiscal year ending March 2024 (FYE3/24), AML reported a net profit of MYR36.4 million, while AMLT incurred a net loss of MYR12.6 million. Together, these units contributed only 0.6% to AMMB’s group earnings. For fiscal year 2025 (FY25E), AMMB is forecasted to achieve group earnings growth of 11.7%, driven by better net interest margins (NIMs) and lower credit costs. Despite an anticipated dip in non-interest income, the overall outlook remains positive.

Investment Recommendation

Maybank Investment Bank Berhad reiterates its BUY recommendation for AMMB Holdings with an unchanged target price (TP) of MYR6.30. This valuation is based on a target CY25E price-to-book value (PBV) of 0.98x, with a cost of equity (COE) of 9.9%, a growth rate (g) of 4%, and an expected return on equity (ROE) of 9.7% for CY25. AMMB remains one of the top picks in the banking sector.

Key Financial Metrics and Performance Indicators

AMMB’s financial performance and metrics are noteworthy:

• Operating income is projected to grow from MYR4,607 million in FY24A to MYR5,338 million by FY27E.
• Core net profit is expected to rise from MYR1,732 million in FY24A to MYR2,163 million in FY27E.
• Net dividend yield is forecasted to increase from 5.4% in FY24A to 5.8% in FY27E, reflecting a strong dividend policy.
• Cost-to-income ratio is set to improve from 44.5% in FY24A to 42.0% by FY27E.
• Gross non-performing loans (NPL) ratio is expected to remain stable at around 1.5% through FY27E, showcasing effective risk management.

Risks to Consider

The report outlines several risks that could impact AMMB’s earnings and valuation:

• A slowdown in Malaysia’s domestic economy could negatively affect the group’s earnings.
• Increased competition in deposit rates could pressure margins.
• Deterioration in asset quality, particularly in the commercial property sector, could lead to higher loan provisions.

Price Performance and Shareholder Insights

AMMB’s share price has shown significant growth over the past year, with a 12-month price target of MYR6.30 representing a potential upside of 12% from the current price of MYR5.64. Notably, foreign shareholding excluding ANZ’s 23.8% stake stood at 31.2% as of December 2024, reflecting strong international interest in the company.

Sector Outlook and Insights

The report positions AMMB as a key player in Malaysia’s banking sector, offering integrated financial services including retail banking, wholesale banking, investment banking, and Islamic banking. Its strong capital base and prudent risk management practices make it a resilient choice for investors seeking exposure to Malaysia’s financial sector.

Conclusion

AMMB Holdings stands out as a well-managed and financially robust company in Malaysia’s banking sector. With a healthy CET1 ratio, improving earnings trajectory, and attractive dividend yield, AMMB is well-positioned for sustained growth. Maybank Investment Bank Berhad’s reaffirmed BUY recommendation underscores its confidence in the company’s long-term prospects.