Investment Highlight

• We maintain our BUY recommendation on Alliance Bank Malaysia (ABMB) with an unchanged fair value of RM5.00/share. Our fair value is supported by an FY19 ROE of 9.8%, pegging the stock to a P/BV of 1.3x. We finetuned our net profit estimates for FY20/21 by -1.7/-2.1% as we tweaked our credit cost and NIM assumptions.

• The group reported a net profit of RM141mil in 2QFY19 (+3.0%QoQ; +14.4%YoY). Cumulative 1HFY19 earnings of RM277mil (+7.4%YoY) were within expectations, making up 49.9% of our and 49.3% of consensus estimates respectively.

• Growth in total income growth was modest at 2.5%YoY for 1HFY19. Stronger NII from focussing on growing higher risk-adjusted return (RAR) loans was partially offset by lower NOII. NOII declined due to a drop in wealth management income, FX trading income gain and higher net interest expense on structured investments by RM9.2mil. We understand that under the MFRS 101, interest expense for structured investments has been reclassified from NII to NOII.

• The non-recurring expenses for group’s restructuring/transformation as in FY18 has kept opex under control, resulting in a lower CI ratio of 46.8% for 1HFY19. JAW has turned positive of 0.3%YoY for 1HFY19.

• Gross loan growth was decent at 5.2%YoY vs. 3.8%YoY in the preceding quarter. Higher RAR loans expanded by 24.5%YoY while the lower RAR loan contracted by 4.5%YoY. 2QFY19 saw the group's NIM rising by 2bps QoQ at 2.45% supported by higher mix of better RAR loans.

• Absolute impaired loan balanced fell by 11.6%QoQ contributed by repayments from business accounts, mortgage loans and the regularisation of R&R loans. This has, in turn, lowered the group’s GIL ratio to 1.37% from 1.57% in the preceding quarter which was better than the industry’s 1.5%.

• Credit cost for 1HFY19 has improved to 0.28% (1HFY18: 0.33%) lower compared with our estimate of 0.36% for the full FY19.

• An interim dividend of 8.5 sen/share has been proposed for 1HFY19 (payout of 48.0%).

Source: AmInvest Research - 30 Nov 2018