AmBank poised for positive returns in FY23

PETALING JAYA: Analysts expect AMMB Holdings Bhd (AmBank) to meet its 7% loan growth target for financial year 2023 (FY23), on the back of better economic performance.

The sale of the banking group’s general insurance business is also expected to yield positive returns and help AmBank hit its 10% return on equity (ROE) target for FY23.

Kenanga Research said AmBank’s net interest margins (NIM) will get a boost from hikes in the overnight policy rates and support against competitive pricing pressures as the recovery in the economy supports loan demand.

“Provisions may see some adjustments with the higher rates but it should not be significant enough to steer its 35 to 40-basis points (bps) credit cost target for FY23.

“AmBank’s repayment assistance books now make up only 5% of total loans with the progressive exit of rehabilitated accounts, of which 40% are re-enrolling,” Kenanga Research noted in a report.

The sale of AmGeneral Insurance Bhd to Liberty Insurance Bhd (for cash and shares) will dilute AmBank’s stake in the merged insurance entity to 30% but the bank is confident Liberty Insurance could take the insurance segment to new heights.

The combined entity stands to become the largest auto insurer in Malaysia and the synergies created could boast net contributions to AmBank.

This, AmBank’s management told analysts, led to an increase in ROE guidance to above 10%. Post completion of disposal, Ambank received RM304mil cash and an additional RM959mil in equity interest value from its 30% stake in the combined entity, Kenanga Research said.

“We do not expect special dividends from the disposal of the AmGeneral stake as the group only registered a net disposal gain of RM5mil,” the research house informed.

The higher ROE guidance saw Kenange Research raise its target price for AmBank to RM4.75 a share (from RM4.35) and tweaked its net profit forecast by 1% for FY23 to RM1.63bil.

It also noted that when AmBank had a ROE of 10% in 2017, it was trading closer to a 0.9-times price to book valuation.

AmBank’s first quarter (1Q23) earnings of RM419.2mil (up 8% year-on-year (y-o-y) came within analysts expectations thanks to robust total income growth and drop in loan loss provision.

“Income drivers came from widening NIM (plus 7bps) and loan growth (plus 4%). However, non-interest income was a drag, declining 23% on the back of weaker fees and investment showing,” Hong Leong Investment Bank Research said on AmBank 1Q results based on a yeat-on-year (y-o-y) basis.

Loans and deposits growth lost traction to plus 3.9% y-o-y (4Q22: plus 4.6%) and plus 6.4% y-o-y (4Q22: plus 1.9%), respectively. In turn, loan-to-deposit ratio was sequentially up one percentage point to 99%.

For asset quality, gross impaired loans ratio rose 15bps quarter-on-quarter to 1.55% due to larger non-performing loan formation at both the retail and construction segments.

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