• Upgrade to BUY from Neutral, new MYR4 TP from MYR3.50, 17%upside with c.7% FY25F (Mar) yield. Alliance Bank Malaysia’s 1HFY24net profit of MYR356m was a slight beat, making up 53% of our full-yearforecast. At the halfway mark, the bank is on track to meet all of its guidancefor the year, and a sequential drop in GILs was the icing on the cake. Weupgrade our stock rating to a BUY on its above-industry loan growthprospects, improved asset quality outlook and attractive valuation.

• Results review. 3QFY24 net profit of MYR185.3m (+17% YoY, +23% QoQ)brought the half-time figure to MYR355.9m (-9% YoY) – slightly ahead ofour full-year estimate, but in line with that of the Street. The YoY deviationmainly arose from higher opex (+14%) and loan loss provisions (+30%), asthere was a net write-back in 1QFY23. NII (+2%) benefitted from higher loanvolume (+10%), while non-II (+16%) was driven by trading gains. Reported1HFY24 ROE of 10.1% met management’s >10% target. An interim DPS of10.85 sen was declared, representing a 50% payout and c.3% yield.

• NIM guidance maintained. 2Q NIM of 2.53% (+10bps QoQ) brought the1H average to 2.48% (-16bps YoY) – within its guidance of 2.45-2.50%. Thestrong QoQ performance was due to the bank maintaining pricing disciplineon new loans, while allowing high-cost fixed deposits to roll off the books.In view of the impending year-end deposit competition, managementexpects NIM to dip slightly in 3Q, followed by a rebound in 4Q. The full-yearNIM guidance was maintained.

• No letdown in the loan growth momentum. Loans added 10% YoY (QoQ:+3%), at the higher end of its 8-10% guidance. Mortgages (among theemerging affluent segment) were the primary growth driver, and no letdownis expected despite the increasing competition in mortgage rates – the bankwill instead focus on service delivery as a differentiator. Other areas ofopportunity include the states of Penang, Sarawak and Johor, where thebank is establishing the personnel and infrastructure to drive growth.

• GILs has likely peaked. ABMB’s GILs eased 1% QoQ (YoY: +47%) in 2Q,on lower GIL formation and improved recoveries. Combined with the strongloans growth, this led to a lower GIL ratio of 2.5% (1Q: 2.6%). The bankbelieves GILs have passed the peak (in 1Q), especially as the 30-dayspast-due ratios across the board are pointing downwards. Despite 71% ofABMB’s GILs being secured and the balances fully provisioned for, the bankstill aims to maintain a >100% LLC (2Q: 120%).

• We raise FY24-26F earnings by 5-6% mainly on stronger non-IIassumptions. Our TP is lifted to MYR4 (from MYR3.50) and includes a 6%ESG premium. We upgrade the stock to a BUY premised on its improvedgrowth and asset quality outlook and undemanding valuation – 0.7x P/BVagainst 10% ROE looks attractive, in our view.

Source: RHB Securities Research - 1 Dec 2023