We set our target price for AMMB at RM4.50 based on a PB ROE methodology. We derive a target PB multiple of 0.7x on FY25e (year-end Mar) based on 10.3% CoE, 8% sustainable ROE, and 3.9% growth rate. Given the improved ROE profile, we believe AMMB should trade ahead of its last 5-year average P/B of 0.63x (ROE of 8.2%). Our valuation methodology also considers sustainable earnings, dividend growth, and excess returns relative to cost of equity, which in turn factors in the liquidity/sentiment impact on valuation.

Key downside risks that could cause the shares to trade below our target price include: i) macro slowdown that impacts loan and fee income growth; ii) credit cost increase due to rising unemployment; iii) intensified competition with digital disruptor(s); and iv) currency risk.

Key upside risks that could cause the shares to trade above our target price include: i) faster-than-expected interest rate rise resulting in RoE improvement; ii) better market conditions that improve insurance demand; and iii) digital investments bearing fruit.