AmBank set to report stronger earnings, says Kenanga Research

KUALA LUMPUR: AMMB Holdings Bhd is poised to continue reporting stronger earnings supported by credit cost improvements and from the successful disposal of its AmGeneral stake to Liberty Insurance. 

Kenanga Research noted that with the completion of AmGeneral disposal which was now a 30 per cent-owned associate, the company was confident that its new partner, Liberty Insurance Bhd could take its insurance segment to new heights. 

"The combined entity stands to become the largest auto insurer in Malaysia and the added synergies could boast net contributions to profit after tax and minority interests (PATAMI). 

"This called for the group to increase its return on equity (ROE) guidance to at least 10 per cent from a range guidance of 9.3-10per cent. 

"Post completion of disposal, Ambank received a RM304 million cash consideration and an additional RM959 million in equity interest value from its 30 per cent stake in the combined entity," it said in a note. 

It said the group viewed there would be little hindrance in achieving its financial year 2023 (FY23) targets of seven per cent loan growth and cost income ratio of less than 45 per cent. 

Two possible rate hikes could be a net benefit for the group as it would support net interest margins against competitive pricing pressures while economic recovery would support loan demand, said the research firm. 

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

"Meanwhile, the repayment assistance books now make up only five per cent of total loans with the progressive exit of rehabilitated accounts, of which 40 per cent are re-enrolling," said Kenanga Research. 

The firm tweaked its FY23 earnings forecast for the company by one per cent. 

"While we match management's guidance in most aspects, we hold on to slightly more conservative ROE readings amidst macro uncertainties," it said. 

Kenanga Research maintained its "Outperform" call on the stock with a higher target price of RM4.75 from RM4.35 previously as it believed interest in the stock will continue to hold from its earnings traction recovery and with targeted ROE levels of 10 per cent.