AMBANK: Strong Earnings Performance Driven by Cost Efficiencies, Payouts Rise

Interim financial results for the first half of fiscal year 2026 (1HFY26) have shown a robust performance, slightly exceeding analysts’ expectations and aligning with market consensus. A significant highlight was the interim dividend per share (DPS) of 12.5 sen, a 21% year-on-year increase and above initial estimates, underscoring management’s commitment to enhancing capital returns to shareholders.

Performance Review

The group’s net profit for the second quarter of FY26 (2QFY26) rose by 7% year-on-year and 4% quarter-on-quarter to MYR535 million. This contributed to a total net profit of MYR1.05 billion for 1HFY26, marking a 5% increase from the prior year. The reported Return on Equity (ROE) remained stable at 10.1% for the period. Strong income growth of 8% was a primary driver, fueled by a 5% increase in net interest income (NII) and a substantial 13% growth in non-interest income (non-II). The increased DPS, reflecting a 39% payout ratio, signals a strategic expansion in dividend policy.

Operational Landscape and Challenges

Despite the positive earnings, the group navigated certain operational headwinds. Net interest margin (NIM) experienced a 4-basis point quarter-on-quarter compression in 2QFY26, attributed to July’s policy rate cut. However, this was partially offset by a significant non-loan expected credit loss (ECL) write-back related to an oil and gas corporate account. While gross loans grew by 4% year-on-year, primarily led by strong growth in wholesale (+12%) and business banking (+11%) segments, retail banking loans were flattish quarter-on-quarter, although this marked a reversal from previous negative trends. Asset quality saw a sequential deterioration in the gross impaired loans (GIL) ratio to 1.75% from 1.71% in 1QFY26, and the group booked an additional MYR99 million in overlays for its SME portfolio to account for idiosyncratic emerging risks. Lower market-related income also contributed to the non-II/total income ratio falling short of usual run rates.

Future Outlook and Strategic Direction

Management has provided a positive outlook for FY26F, targeting a ROE of approximately 10%, a flattish to slight year-on-year NIM expansion from the FY25 level of 1.94%, and mid-single digit loans growth. While further NIM compression is anticipated in 3QFY26 due to seasonality, this is expected to be mitigated by ongoing deposit optimisation, liability management strategies, and an improving asset mix. The group is actively pursuing greater client-based non-interest income, particularly from its “Next 20%” clients. Consequently, analysts have revised their FY26F earnings estimates upwards by 6%, with smaller increases for FY27F and FY28F. Dividend per share assumptions have also been raised for FY26F-28F, reflecting higher payout ratios of 55%, 57%, and 60%.

Investment Perspective

While the group’s performance has been strong and its commitment to capital returns evident, the investment bank (RHB) has maintained a “Neutral” rating. The target price has been raised to MYR6.20 from MYR5.80, indicating a 5% upside from the last traded price of MYR5.88. This revised target price includes a 4% ESG premium, recognizing the company’s sustainability efforts. Analysts noted that the counter’s recent outperformance against the sector suggests that much of the positive news may already be reflected in the share price.