Investment Highlight

• We maintain our HOLD recommendation on Alliance Bank Malaysia (ABMB) with an unchanged fair value of RM2.30/share. Our fair value is based FY22 P/BV of 0.6x, implying an ROE of 7.8%. We fine-tune our FY21/22 earnings by -4.4%/0.6% by tweaking our estimates for interest income.

• The group reported a lower net profit of RM98mil in 4Q20 (-26.8% QoQ) due to higher provisions by RM56.5mil. This included RM45.6mil from the rise in expected credit losses (ECL) from a review of ECL modelling and conservative provisioning for the impact of Covid-19.

• 12M20 earnings fell by 21.1% YoY to RM424mil largely due to higher opex and provisions. Cumulative earnings were within expectations, making up 103.0% of ours and 98.4% of street estimates.

• Operating expenses (opex) grew by 41.1% YoY in 12M20 due to investments in IT infrastructure and higher personal cost. CI ratio was sustained at 47.8% for 12M20. 12M20 saw a neutral JAW with growth in operating expenses offset by the rise in total income.

• Gross loan growth tapered to 2.2% YoY, slower than the industry’s growth of 4.0% YoY.

• 4Q20 saw interest margin improve by 7bps QoQ to 2.46% despite two OPR cuts of 25bps each in Jan and Mar 2020. This was contributed by higher interest income from growth in loans and treasury assets, coupled with lower funding cost from the repricing of Saveplus in the quarter. The group’s GIL ratio rose to 2.00% in 4Q20 from 1.86% in 3Q20 due to higher impairments of personal, mortgages and working capital loans.

• Annualised credit cost based only on loans for 4Q20 rose to 0.90% from 0.38% in 3Q20. For 12M20, credit cost for loans was 0.63% vs. 0.31% in 12M19.

• No dividend has been proposed in 4Q20, resulting in the full FY20 dividends of only 6 sen/share (payout: 22.0%). This was below our expectation of 12.8 sen/share. The group will consider future dividends once there is more clarity of the impact of Covid-19.

Source: AmInvest Research - 26 Jun 2020