Key takeaways from ESG Day

■ We are positive on AMMB hosting its inaugural ESG Day on 12 Jan as this reflected its commitment to enhance its ESG disclosure.
■ Going forward, we believe AMMB’s ESG focus would be on the analysis of its climate-change risks and further improvement in its ESG disclosure.
■ Reiterate Add given its attractive valuation (CY22F P/E of 8.8x is the second lowest in the sector) and projected recovery in core EPS growth in FY22-23F.

An inaugural ESG Day by AMMB

AMMB Holdings hosted an inaugural ESG (Environmental, Social and Governance) Day on 12 Jan for analysts and fund managers. We are positive on this as it reflected the bank’s commitment to improve its ESG disclosure. In addition, the event also featured speakers from outside the group, including Bank Negara Malaysia (BNM) Deputy Governor Ms Jessica Chew Cheng Lian.

Banks have shown progress in addressing climate change risks

During AMMB’s ESG Day, BNM shared that several financial institutions have started to set climate change targets. We take this positively as it showed that banks have started to formulate plans to address their climate change risks. Going forward, BNM will introduce more regulatory requirements for banks to manage this risk, including the compliance with Climate Change Principle-based Taxonomy from Jul 2022 onwards, and industry-wide stress testing exercise in 2024.

Progress and focuses for AMMB’s ESG adoption

AMMB has through the event shared the progress of its ESG adoption. Notably, AMMB had in FY3/21 introduced (1) its exclusion list for financing based on ESG criteria, and (2) an environmental and social risk grading system for new non-retail credit applications. Going forward, we believe AMMB’s key ESG focus would be on (1) establishing a system to identify and track its climate change risks; (2) further improving its ESG disclosure, which would cover the percentage of loans exposed to sectors with high ESG risks as well as exposures to and risks from climate change; and (3) increasing its sustainable lending.

Reiterate Add on AMMB

AMMB is not our ESG pick among the Malaysian banks (as it still lags behind some of its peers in terms of ESG disclosure) but we are positive on its commitment to improve its ESG standards. We retain our Add call on AMMB given its attractive valuation. Its CY22F P/E of 8.8x is the second-lowest in the sector and below the sector’s average of 12.5x. A continuous recovery in its core EPS growth in FY22-23F is a potential re-rating catalyst. We retain our FY22-24F EPS forecasts and DDM-based target price of RM3.64.