• Alliance Bank’s 9MFY3/24 NP was within our expectations, accounting for 72.2% of our full-year forecast. We project an 11.4% qoq rise in 4QFY24 NP.

• We are projecting a surge of 51.4% yoy in Alliance’s 4QFY24 NP, driven by expansion in net interest income and lower LLP.

• We maintain our Hold call. Compared to other local banks, Alliance has a relatively smaller management overlay to shield it from increases in provision.

9MFY3/24 net profit within our expectations

Alliance Bank’s 9MFY3/24 net profit (NP) was within our expectations, accounting for 72.2% of our full-year forecast, but above street estimate at 77% of Bloomberg consensus’ estimate. 9MFY24 net profit dwindled by 6.4% yoy due to a 13.1% yoy increase in overheads (which outpaced the 3.7% yoy growth in 9MFY24 operating revenue). We are projecting an 11.4% qoq increase in 4QFY3/24 net profit, underpinned by its robust loan growth.

Flattish 3QFY24 NP despite robust loan growth

Despite the strong loan growth of 12.9% yoy at end-Dec 23, Alliance’s 3QFY24 net interest income rose by just 1.8% as net interest margin contracted by 27bp yoy. On the back of weak net interest income, the bank recorded a growth of only 2.7% in 3QFY24 operating revenue. As overheads rose by a wider margin of 11.7% yoy in 3QFY24, its pre-provision profit dwindled by 4.6% yoy. This was the main reason for the flattish 3QFY24 NP (-0.1% yoy), despite the 32.9% yoy drop in 3QFY24 loan loss provisioning (LLP).

Projecting a surge in 4QFY24F net profit

We are projecting a NP of RM197.1m in 4QFY24F, representing a surge of 51.4% yoy. Earnings catalysts in 4QFY24F would be an expansion in net interest income (on the back of swift loan growth and stabilised net interest margin) and potentially lower LLP.

Alliance achieved nearly all its FY24F KPIs

Based on its financial performance in FY24F, Alliance Bank achieved nearly all of its FY24F KPIs (except for a small miss for its cost-to-income ratio), including: 1) ROE of more than 10%, 2) loan growth of 8-10%, 3) net interest margin of between 2.45% and 2.5%, and 4) credit charge-off rate of 30-35bp.

Reiterate Hold on Alliance Bank

Despite its swift loan growth, we maintain our Hold call on Alliance Bank, given that it has a relatively smaller management overlay to shield it from any increases in LLP (or for further write-backs) when compared to other local banks. Key upside risk would be further improvements in loan growth, while a key downside risk is compression in net interest margin. We prefer Hong Leong Bank for exposure to the sector. We maintain our FY24- 26F EPS forecasts, as well as our DDM-based target price of RM3.70 (cost of equity of 10%; terminal growth rate of 4%).

Source: CGS-CIMB Research - 28 Feb 2024