AMBANK: Financial Group Posts Resilient Earnings, Target Price Raised

A prominent financial institution has reported a robust financial performance for the second quarter and first half of FY26, with profit after tax and minority interest (PATMI) largely in line with both internal and consensus estimates. The group’s 2QFY26 PATMI saw a 6.8% year-on-year increase to RM534.6 million, contributing to a cumulative 1HFY26 PATMI of RM1.05 billion, up 5% year-on-year.

Performance Review

The positive results were primarily driven by a combination of higher net interest income (NII) and improved non-interest income (NOII). Net interest margin (NIM) expanded by 7 basis points in 1HFY26 to 1.99%, a testament to active liability management initiatives aimed at reducing reliance on expensive funds. However, a slight quarter-on-quarter compression in NIM was observed due to a recent OPR cut and increased year-end deposit competition, though management expects this to be largely offset by ongoing liability management efforts.

Non-interest income demonstrated significant strength, rising 13% year-on-year (though flat quarter-on-quarter). This growth was largely attributable to higher treasury income, which effectively compensated for a softer performance in fee income from investment banking and wealth management segments.

Despite these gains, loan growth remained soft at a modest +1% year-to-date, predominantly led by business banking loans. The group anticipates a pickup in business banking loan growth in the second half of FY26, supported by a strong loan pipeline. Retail loan growth is expected to remain subdued as the institution continues its strategy to de-risk its retail and retail SME portfolios. Deposits also saw a 1% year-to-date decline, largely due to departures in current account and savings account (CASA) funds, pushing the CASA ratio down to 34.5%. Despite this, liquidity remains strong, with a Net Stable Funding Ratio (NSFR) of 110.4% and a Liquidity Coverage Ratio (LCR) exceeding 135%, mitigating concerns over the loan-to-deposit ratio remaining above 100%.

Challenges and Asset Quality

Pockets of stress were noted within the SME portfolio. The Gross Impaired Loans (GIL) ratio worsened to 1.75% quarter-on-quarter (from 1.17%), primarily driven by higher business banking GIL in the property and manufacturing sectors. Consequently, net credit cost, including additional management overlays, increased to 42bps (from 20bps in 1HFY25) due to higher provisions for the SME portfolio. The group maintains outstanding management overlays totaling RM497 million, which are expected to provide sufficient buffers against potential asset quality deterioration. Encouragingly, the wholesale banking GIL ratio improved quarter-on-quarter, indicating a recovery in that segment.

Future Outlook and Recommendation

Following the resilient performance, the investment bank has adjusted its earnings forecasts for FY26-28F upwards by an average of 2%, with revised NIM assumptions. The group also declared a higher interim dividend per share of 12.5 sen, translating to a payout ratio of 39%. Given the group’s proactive liability management, strong non-interest income performance, and strategic adjustments, the investment bank has maintained a “Neutral” recommendation for the shares, with a revised target price of RM5.70, up from the previous RM5.50.