UOB Kay Hian
Date of Report: Tuesday, 19 August 2025
AMMB Holdings 1QFY26 Results: Strong Growth, Attractive Valuation, and Robust Dividend Outlook

Overview: AMMB Holdings Delivers Solid 1QFY26 Performance with Positive Outlook

AMMB Holdings, Malaysia’s sixth largest bank by assets and the second largest player in auto financing, has delivered an impressive set of results for the first quarter of FY26. The report from UOB Kay Hian highlights strong top-line growth, margin expansion, and robust trading income, all of which support a maintained BUY recommendation with a target price of RM6.08. With the stock trading at compelling valuations and offering a dividend yield of 6.2%, AMMB stands out as a noteworthy opportunity for investors seeking income and growth in the Malaysian banking sector.

Key Highlights and Investment Case

• BUY Rating Maintained: Target price of RM6.08, reflecting a 0.94x FY26F P/B and 9.4% ROE.
• Attractive Upside: 11.6% upside from current price of RM5.45.
• Strong Dividend Yield: Projected yield of 6.2%, with a gradual increase in payout ratio expected.
• Valuation: Trading at 0.5SD below historical mean P/B, with above-average ROE.
• Solid 1QFY26 Results: Earnings of RM516.7m (+3.2% YoY, flat QoQ), in line with expectations (25% of full-year estimates).
• Resilient Top-Line Growth: Driven by NIM expansion, robust trading income, and positive operating JAWS.

Financial Performance Snapshot: 1QFY26 vs. 1QFY25 & 4QFY25

Detailed Analysis: Drivers and Trends

Margin Expansion and Trading Income Drive Results

• Net Interest Margin (NIM): Improved 12bp YoY and 5bp QoQ, reaching 2.01%, thanks to deposit optimisation and lower funding costs.
• Trading Income: Up 45% YoY, offsetting softer fee income due to weaker wealth and investment banking activity.
• Operating JAWS: Positive by 2ppt, supporting robust pre-provision operating profit growth of 10.4% YoY.

Credit Cost and Asset Quality

• Net Credit Cost: Normalised to 25bp (from 11bp last year) due to absence of large management overlays and specific provisions for retail SME loans.
• Gross Impaired Loans (GIL) Ratio: Rose to 1.71%, mainly from the retail SME segment. However, 70% of these loans are guaranteed under the CGC scheme, limiting provisioning needs.

Non-Interest Income Momentum

• 8% YoY Growth: Non-interest income up 8% YoY, driven by trading gains.
• Fee Income: Fell 11% YoY, with wealth management fees down 30% and investment banking fees down 20%.
• Outlook: Management expects fee income recovery in coming quarters as risk sentiment improves post-Liberation Day.

Key Financial Projections (FY24-FY28)

Operational and Strategic Insights

NIM and Funding Cost Outlook

• Management expects a 4–5bp sequential NIM compression in 2QFY26 following a 25bp OPR cut, but targets a 2bp full-year NIM expansion, reflecting strong deposit optimisation and retail lending discipline.
• Opportunities exist to refinance debt securities at lower yields as part of the funding cost strategy.

Asset Quality and Provisioning

• Retail SME loans (4% of total) are showing some stress, but with 70% backed by the CGC, provisioning needs are limited.
• Commercial and wholesale banking asset quality remains healthy.
• Credit cost guidance maintained at 15–20bp (UOBKH forecast: 18bp), supported by expected recoveries in wholesale banking in 2HFY26.

Loan and Deposit Growth

• Gross loans rose 5% YoY to RM138.1b, led by business banking (+6%) and wholesale banking (+16.5%). Retail banking loans declined by 1% as the bank strategically shifts to higher-yielding segments.
• Customer deposits are expected to grow by 6% in FY26, with a loan-to-deposit ratio projected to remain stable around 97%.

Capital Position and Dividend Policy

• CET1 ratio strengthened to 15.3%, providing a solid buffer for dividend increases. The bank aims to gradually raise its payout ratio to 60% over the long term, with a forecast FY26 payout of 55% (FY25: 50%).

ESG Initiatives: Environmental, Social, and Governance Commitments

• Environmental:
  • Credit policy prohibits lending to environmentally harmful illegal activities.
  • Eco-friendly materials and digitalisation are reducing the bank’s carbon footprint and paper use.
• Social:
  • 61% of workforce are women; 79% of these hold management positions, and 18% are in senior management.
  • Annual employee engagement survey (Voice of Employee) guides staff welfare initiatives.
• Governance:
  • 40% of the board are Independent Non-Executive Directors.

Key Operating Metrics and Ratios (FY25-FY28)

Valuation and Conclusion

• AMMB remains attractively valued at 0.84x P/B (0.5SD below historical mean), with a 9.4% ROE (10% above 10-year average).
• The combination of strong capital, improving margins, robust trading income, and high dividend yield makes AMMB an appealing pick for investors seeking both growth and income in the Malaysian banking sector.
• No changes to earnings forecasts; the investment thesis remains robust with a positive outlook for the coming quarters.

Recommendation: BUY, with a target price of RM6.08 and an attractive 6.2% dividend yield.