ABMB: Cost Efficiencies Drive Solid Earnings, Investment Bank Upgrades to Buy

A leading financial group has reported a robust performance for the first half of the financial year 2026 (1HFY26), with net profit climbing 5% year-on-year to RM1,051 million. The results were in line with analysts’ expectations, representing 49% of the full-year forecast, and highlighted stable annualised Return on Equity (ROE) at 10.1%. In a sign of confidence, the group declared a higher interim dividend of 12.5 sen per share, up from 10.3 sen a year ago, translating to an improved payout ratio of 39%. Following these positive results and an enhanced risk-reward profile, a local investment bank has upgraded its recommendation on the stock to “Buy,” raising the target price to RM6.60.

Performance Review

The impressive earnings growth was primarily underpinned by higher income and significant cost optimisation efforts. Net Interest Income (NII) expanded by 5% year-on-year, with the Net Interest Margin (NIM) strengthening by 6 basis points to 1.99%. This improvement was a direct result of the group’s proactive cost management initiatives. Despite an 8% year-on-year increase in overhead expenses, largely due to higher staff costs and computerisation, the Cost-to-Income (CTI) ratio remained steady at 43.8%, reflecting effective expense control. Furthermore, total non-NII accelerated by 13% year-on-year, boosted by strong trading gains in Group Treasury & Markets, which offset lower fee income from investment banking and wealth management segments.

The group’s loans and advances grew 4.5% year-on-year, with a 2% quarter-on-quarter increase. Growth momentum was driven by robust demand from Business Banking, while Retail and Wholesale Banking experienced muted expansion due to management’s de-risking efforts. Customer deposits also saw healthy growth, rising 2.7% year-on-year and 1.5% quarter-on-quarter to RM140.0 billion. However, the Current Account Savings Account (CASA) ratio slightly decreased to 34.5% from 36.0% in the previous financial year.

Challenges and Asset Quality

Despite the positive overall performance, certain challenges and areas for vigilance were noted. The group reported higher net impairment charges amounting to RM96 million in 1HFY26, up from RM57 million in 1HFY25, primarily due to increased overlay provisions for the SME portfolio. This led to a rise in the Gross Impaired Loans (GIL) ratio to 1.75% from 1.67% a year ago. Analysts anticipate potential mild compression in NIM and a slight rise in credit costs as possible headwinds, necessitating ongoing monitoring of asset quality trends.

Future Outlook and Strategic Focus

Looking ahead, management is guiding for mid-single-digit profit growth for the full year, broadly aligning with GDP forecasts. The group remains confident of achieving a double-digit ROE of approximately 10%. Strategically, the group will maintain a selective approach to loan expansion, with a focus on higher-ticket, better-quality mortgages and re-engagement with the mass affluent segment in retail banking. The auto financing portfolio is being rebalanced to include a 20% share of used foreign cars to optimise yields. On the funding front, a key priority is to reshape the deposit base towards a more cost-efficient structure by growing retail deposits and operational CASA, while scaling back higher-cost non-retail fixed deposits. The bank’s liquidity position remains sound, with the Common Equity Tier 1 (CETI) Ratio at 15.3% and Net Stable Funding Ratio (NSFR) at 110.4%.

Analyst View

TA Securities has rolled forward its valuation base year to FY27, prompting an upgrade of its target price to RM6.60 from RM6.10. The valuation is based on an implied Price-to-Book Value of approximately 0.93x using the Gordon Growth Model. The investment bank noted that the risk-reward profile has widened to exceed 12%, justifying the upgrade from “Hold” to a “Buy” recommendation.