Investment Highlight

• We maintain HOLD on Alliance Bank Malaysia (ABMB) with a revised fair value of RM2.40/share (previously: RM2.00/share). Our fair value is based a higher FY22 ROE of 7.8% (previously 7.4%), implying a P/BV of 0.6x. We raised our FY22/23 earnings by 6.0%4.0% to reflect higher interest margin assumptions.

• The group reported a flattish net profit of RM104mil in 2Q21 with improved total income offset by higher provisions for loan losses.

• 6M21 core earnings of RM208mil (+8.3% YoY) accounted for 58.0% of our estimates. We deemed this to be within expectations as we expect further provisioning in 2H21 to be set aside with uncertainties remaining on the asset quality from the prolonged Covid-19 pandemic. Meanwhile, against consensus estimates, cumulative net profit was 53.4% of street’s numbers.

• Operating expenses (opex) for 6M21 decreased by 3.8% YoY contributed by lower personal and discretionary expenses. CI ratio improved to 42.1% for 6M21. With growth in total income outpacing expenses, 6M21 JAW was a positive 11.4% YoY.

• Gross loan growth remained modest 1.2% YoY in 2Q21 (1Q21: 1.7% YoY) still lagging behind the industry’s growth of 4.4% YoY. In 2Q21, the group was more focussed on extending targeted assistance to borrowers impacted by the pandemic.

• 2Q21 saw NIM improved by 2bps QoQ to 2.23% due to lower funding cost from better deposit mix with higher CASA ratio as well as repricing of liabilities. We expect a further improvement in interest margin ahead as deposits continue to be repriced with no further OPR reductions.

• The group’s GIL ratio continued to trend downwards to 1.75% in 2Q21 from 1.89% in 1Q21 with most retail and SME loans still under the moratorium and a freeze in staging of loans. Still expecting upticks in impaired loans moving forward due to the prolonged Covid-19 pandemic.

• Annualised credit cost based only on loans for 2Q21 remained elevated at 1.38% in 2Q21 (1Q21: 0.88%) as RM151mil of provisions were booked in as management overlay in the quarter. 6M21 credit cost stood at 1.12% comprising RM209mil provisions set aside as management overlay.

• No interim has been declared for the quarter. Dividends are only expected to the declared when the economic impact of the pandemic becomes clearer.

Source: AmInvest Research - 30 Nov 2020