KUALA LUMPUR (Feb 21): AMMB Holdings Bhd (KL:AMBANK) has a lot of room to dish out more dividends, thanks to lower loan loss allowances and better total income growth, analysts said.

Hong Leong Investment Bank (HLIB), in a note on Friday forecasted a dividend per share (DPS) of 27 sen, representing a 45.2% payout ratio and a 4.7% dividend yield for AmBank’s FY2025.

“Despite the recent price run-up, we still like AMMB for its relatively undemanding valuations,” HLIB added, maintaining its “buy” call on the stock. 

“We believe AMMB still has a lot of runway to dish out more dividends.”

Phillip Capital also viewed AmBank as attractive, and maintained a “buy” call on the stock, citing potential for a higher dividend payout, exceeding 50%.

The house noted that AmBank is on track to hit a return on equity of 10% for FY2025, and expects a full-year DPS of 29.5 sen, indicating a 50% payout ratio and a dividend yield of 5.1%.

Meanwhile, Phillip Capital is not overly concerned about the high loan-to-deposit ratios (99%) “as management continues to tap the debt market for funding”.

The house also noted that despite terminating its insurance arm sale, AmBank remains well-capitalised, with a common equity Tier 1 (CET1) ratio of 15.33%, including 3QFY2025 unverified profits.

HLIB said that moving forward, while AmBank’s net interest margin (NIM) may slightly dip in the upcoming quarter due to seasonal deposit pressures, funding cost optimisation should help offset this impact.

In addition, growing higher-yielding business banking will further support the bank’s efforts to mitigate the potential decline in NIM, the research house added.

“Separately, we expect credit growth to chug along, given the resilient economic condition. That said, net credit cost (NCC) is seen to normalise up to mid-teens level (from 11 basis point currently), due to smaller reversals,” HLIB said.

AmBank holds a RM514 million management overlay balance, acting as an earnings lever when needed, while its loan loss coverage currently stands at 85%, up from around 65% pre-pandemic, HLIB added.

AmBank’s recent third quarterly results came within, and in some cases, exceeded analysts expectations.

HLIB noted that AmBank booked a 3QFY2025 core net profit of RM487 million, bringing its 9MFY2025 total to RM1.5 billion, which was a tad above estimates, forming 77%-78% of its and consensus full-year forecasts.  

There are now nine “buy”, seven “hold” and no “sell” calls out of 16 research houses covering AmBank. The average target price is RM6.08, according to Bloomberg, suggesting a potential return of up to 6.1% in the next 12 months from the last price.

At the time of writing on Friday, shares of AmBank were up three sen or 0.5% at RM5.76, giving the group a market capitalisation of RM19.05 billion. The counter is up about 5% this year.