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 9.9%, pegging the stock to a P/BV of 1.3x. We finetuned our net profit estimates for FY19/20 by +1.6/+0.8% by adjusting our assumption for asset yields higher.

• The group reported a higher net profit of RM149mil in 3QFY19 (+6.0%QoQ) contributed by a stronger total income partially offset by higher operating expenses and provisions.

• 9MFY19 earnings grew 11.9%YoY to RM426mil supported by modest income growth. Revenue was driven largely by an increase in net interest income (NII) from optimisation of loan mix with a stronger growth towards higher risk-adjusted return (RAR) loans. Non-interest income (NOII) remained soft for 9MFY18 due to lower treasury income, a drop in fee income from wealth management and credit cards as well higher interest expenses on structured investments. Cumulative earnings were within expectations, making up 76.8% of our and 75.7% of consensus estimates respectively.

• Operating expenses (opex) declined 1.8%YoY in 9MFY19 due to non-repeat of restructuring cost in the previous year as well as savings from the abolishment of the GST. These have resulted in lowering its CI ratio to 46.9% for 9MFY19. 9MFY19 JAW was a positive 6.1%.

• Gross loans grew 6.0%YoY vs. 5.2%YoY in the preceding quarter. Higher RAR loans expanded by 26.6%YoY and continued to outpace the lower RAR loans which contracted by 4.6%YoY. 3QFY19 saw the group's NIM rising by 11bps QoQ to 2.56% supported by a higher mix of better RAR loans.

• The group’s GIL ratio trended lower to 1.28%, better than the industry’s 1.5%.

• Credit cost for 9MFY19 was higher at 0.29% (9MFY18: 0.19%). Nevertheless, it was still below our estimate of 0.36% for the full FY19. Recall, that in 9MFY18, a one-off write-back due to an alignment of credit rating scale for corporate loans had lowered the group’s credit cost by 9bps.

Source: AmInvest Research - 1 Mar 2019