PublicInvest Research

Author: PublicInvest   |   Latest post: Thu, 21 Jan 2021, 11:57 AM


Alliance Bank Malaysia Berhad - Steady Performance

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The Group reported a steady net profit of RM103.9m (-10.1% YoY, -0.4%) for 2QFY21, with cumulative 1HFY21 net profit of RM208.3m (+8.3% YoY) coming in within our and consensus estimates at 53% of full-year numbers. Margins improved as gross impairment ratio also ticked lower sequentially. On-going cost rationalization initiatives have contributed to another positive JAWS, with costincome ratio a healthy 42.1% as at 1HFY21. We continue to like the Group’s prospects, with its business initiatives underpinning longer-term earnings growth prospects. Our Trading Buy call is retained though with a higher target price of RM2.80 (RM2.30 previously) as we make slight changes to our dividend payout assumptions on account of lower risk premiums.

  • Net interest income (NII) for 2QFY21 improved both on a YoY (+6.2%) and QoQ (+5.7%) basis mainly due to lower funding cost from a better deposit mix (CASA ratio improved to 41.3%). Cumulative 1HFY21 NII of RM666.5m, including Islamic banking income, is still +2.0% higher YoY despite multiple (5) Policy Rate (OPR) cuts and net modification losses of RM22.1m booked in as a result of the 6-month blanket loan repayment moratorium.
  • Non-interest income jumped a commendable 28.4% YoY to RM229.5m for 1HFY21, largely on account of higher treasury and certain client-based fee income (brokerage and wealth management).
  • Loans growth momentum was subdued as the immediate focus continued to be on targeted assistances to affected borrowers. On the latter, RM5bn has been extended to-date – RM2.1bn to 3-mextended moratoriums and predominantly mortgage-related while RM2.9bn went to payment relief assistances (SME – 41%, commercial – 28%). On growth, traction was seen in its core segments, with SME (+7.4% YoY) and consumer banking (+2.5% YoY) providing the impetus. Notable contractions in the commercial and corporate segments are the result of risk management initiatives.
  • Net interest margin (NIM) is down 18bps YTD to 2.22% in 1HFY21, largely the result of multiple OPR cuts. Management will continue to manage the negative effects though rapid re-pricing of its lower-cost deposits, and cautiously expects full-year NIMs to average between 2.3% and 2.35%.
  • Asset quality issues are not as apparent for the Group this current financial year, with higher credit cost of 56.3bps for 1HFY21 including 48.0bps in preemptive provisioning undertaken to guard against still-unknown risk exposures potentially impacted by the pandemic. FY21 credit cost guidance remains a relatively high 100bps for now, though management concedes there could be upside surprises. Gross impaired loans ratio is at 1.70% (1QFY21: 1.89%).

Source: PublicInvest Research - 30 Nov 2020

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