HLIB Research is optimistic about AmBank’s FY29 targets.
PETALING JAYA: AMMB Holdings Bhd
’s (AmBank) new five-year strategic plan aims to raise its returns and valuation by the market and analysts feel its proposed strategy is achievable despite possible execution challenges.
The banking group’s new five-year strategic plan dubbed “Winning Together” aims to deepen customer relationships and ultimately expand its return on equity (ROE) to 11% to 12% by financial year 2029 (FY29) from 8.3% in FY24.
It also wants to raise its return on assets to around 1.1% by FY29 (FY24: 0.97%) by shifting funding mix towards lower-cost retail deposits to improve profitability and with that, double absolute dividend per share (DPS) to about 45 sen by FY29.
To do that, AmBank aims to boost its retail banking business by targeting the affluent market with better wealth management solutions and offer more lifestyle-related propositions to attract higher value accounts, Kenanga Research said.
“Although lowering cost-to-income hinges on doing better on the top line, the group looks to sweat existing assets while investing in better efficiencies.
“It has outlined a five-year capital expenditure plan of RM900mil, which is predominantly infrastructure (30%) related to modernising solutions and to build up its big data analytics capabilities.
“Upgrading and refreshing existing infrastructure could also churn better productivity for the group in the long run,” the research house revealed.
AmBank also wants to grow its wholesale and business banking segments and become a top three investment bank.
The bank aims to improve efficiency and lower its cost-to-income ratio to 40% by FY29 from 44% in FY24.
Hong Leong Investment Bank (HLIB) Research is quite optimistic about AmBank’s FY29 targets.
“The ROE target does not appear to be too stretched, in our view, especially when Ambank has a good track record in cost discipline.
“Also, the move to shift its asset mix to produce better risk-adjusted returns, is a winning recipe that we saw before for one of its competitors. In addition, AmBank has the scope to pay out more dividends in the future to help with its ROE uplift,” the research house stated in its report on the bank.
RHB Research noted that while execution will be a challenge, AmBank’s targets, if achieved, could warrant a re-rating of Ambank, which currently trades at 0.7 times its price to book value (PBV) but aims to trade at one-time PBV by FY29.
“Income growth will be the key area of focus, as its five-year 8% compounded annual growth rate (CAGR) target looks rather steep, when compared to its FY19 to FY24 CAGR of 3%, while loan growth levels are comparatively similar.
“As such, net interest margin (NIM) and non-interest income will have to do most of the heavy lifting,” it opined.
The research house noted that while retail deposits is a hotly contested space, AmBank’s offerings could appeal to its target segments, especially with the right distribution strategies.
It added that AmBank’s plan to further tap into its bancassurance partners’ agency forces for wealth distribution was interesting.
“We think the target of doubling absolute DPS in five years is achievable given existing capital levels and more so with a dividend reinvestment plan,” it said.
RHB Research has maintained its “buy” call on AmBank and raised its target price (TP) to RM5.50 a share after raising the bank’s FY25 to FY27 net profit by 3% to 6%, underpinned by greater NIM expansion and loan growth as well as higher DPS assumptions.
Kenanga Research also maintained its “outperform” call on AmBank with a Gordon growth model (GGM) derived PBV TP of RM5.20 a share.
HLIB Research kept its “buy” call on AmBank with a GGM based TP of RM4.60 a share.
