Investment Highlight

• We maintain our BUY recommendation on Alliance Bank Malaysia (ABMB) with a lower fair value of RM4.60/share from RM4.80/share. Our fair value is supported by FY20 ROE of 9.9%, pegging the stock to a P/BV of 1.3x. We tweak our FY20 earnings lower by 0.7% to account for higher CI ratio assumption.

• The group reported a lower net profit of RM112mil in 4QFY19 (-24.9% QoQ: -1.0% YoY) contributed by lower NII due to the shorter quarter, softer NOII, higher operating expenses and provisions. 4QFY19 recorded a goodwill impairment of RM8.7mil for its stockbroking business as a result of lower projected cash flows.

• 12MFY19 earnings grew 9.0% YoY to RM538mil 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 and an expansion of loan book. Non-interest income (NOII) was soft for 12MFY19 due weaker treasury and investment income, higher interest expenses for structured deposits as well as a decline in fees from credit cards and wealth management. Cumulative earnings were within expectations, making up 95.4% of our numbers but was slightly below street’s accounting for 93.9% of consensus estimates.

• Operating expenses (opex) declined 2.4% YoY in 12MFY19 due to non-repeat of previous year’s restructuring cost and lower admin expenses. These resulted in a lower CI ratio of 47.8% for 12MFY19. 12MFY19 JAW was a positive 5.6%.

• Gross loans grew 6.0% YoY similar to the preceding quarter. FY19 saw the group's NIM improving by 10bps YoY to 2.5% supported by higher mix of better RAR loans.

• The group’s GIL ratio trended lower to 1.1% driven by repayments from several business accounts. Credit cost for FY19 was higher at 0.31% (FY18: 0.24%). Nevertheless, it was still lower than our estimate of 0.36% for the full FY19. Recall, that in 3QFY18, a one-off writeback due to alignment of credit rating scale for corporate loans reduced the group’s credit cost for FY18 by 9bps.

• The group proposed a second interim dividend of 8.2 sen/share bringing the full FY19 total dividends to 16.7 sen/share (payout: 48%) which were slightly lower than our expectation of 18.5 sen/share.

Source: AmInvest Research - 30 May 2019