AmBank's corporate strategy off to good start
It also plans to reposition its retail franchise as a net funder, with an emphasis on operational excellence to enhance cost efficiency.
These are among the highlights AmBank shared during its Strategy Day last Friday, which marked the completion of the first full year under the WT29 strategy.
Hong Leong Investment Bank (HLIB) Research said successful execution of the strategy will reinforce the investment case of the stock, which was trading at relatively undemanding valuations and an attractive 5.8% dividend yield.
The research house said there was also potential for a higher dividend pay out.
'WT29 appears off to a firm start. While the group delivered a solid returns on assets of 1.02%, its cost-to-income ratio (CIR) rose slightly to 44.6% against a target of below 40% due to investments and cost pressures.
'This constrained profit before provision growth to 5% year-on-year, below the 9% compound annual growth rate target,' HLIB Research said in a note to clients.
According to the research house, the banking group's management maintains that its investments were laying the groundwork for future improvements in its CIR.
Meanwhile, the bank's capital remains strong with Common Equity Tier-1 ratio supporting a move towards a 60% dividend payout ratio.
While HLIB Research is bullish, MBSB Research maintained a 'neutral' rating on the stock, noting that the positives, including a potential increase in dividend payouts, improved loan and non-interest income growth and large recoveries have already been priced in.
MBSB Research also expects headwinds in relation to asset quality issues and drag from its slower-growing retail segment.
It also sees return on equity dipping below the current 10% level in future years as a consequence of its fast asset growth rate before its financial year 2029, ending March 31 (FY29) target of 11% is achieved.
It said the stock is currently trading at forward FY26 price-to-book value (PBV) of 0.79 times, which is close to the firm's PBV valuation of 0.81 times with a 5.2% dividend yield.
'There's also a chance that operating expenditure comes in higher than expected, despite the group already replacing 180 employees with artificial intelligence (AI) and intending to rationalise 200 more in the next three to five years, as management repeatedly stresses that the FY29 CIR target of 40% is the hardest to achieve,' said MBSB Research.
On FY26, the research house said AmBank is on track to achieve RM2bil consensus net profit figure, which implies that its upcoming first quarter ended June 30, should see a result close to RM500mil.
The bank shared that key themes for FY26 will centre on operational excellence and digitalisation.
On the operational front, the focus will be on mobilising end-to-end process engineering in retail banking to improve turnaround times and maintain its competitive edge.
This will be coupled with continued liability management, aiming to bring funding costs closer to the overnight policy rate (OPR).
On the digitalisation front, the group plans to build out its data foundation and adopt a comprehensive AI and technology suite to enhance both internal productivity and customer experience.
However, analysts noted that the bank's management is taking a wait-and-see approach regarding a major investment in a new digital core, deferring the decision until a midterm strategy review.
Management also guided that the recent OPR cut is expected to cause two months of margin compression as the bulk of repricing will occur in December.
The estimated impact is around RM10mil per month or three to four basis points on net interest margin, HLIB Research said.
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