Investment Highlight

• We maintain our BUY recommendation on Alliance Bank Malaysia (ABMB) with revised fair value (FV) of RM2.95/share (previously: RM2.80/share). Our FV is based on a higher FY22 ROE of 8.2% (previously 7.8%), implying a P/BV of 0.7x. We fine-tune our FY21/22 earnings by - 20.7%/+3.7% to reflect higher interest margin assumptions and raised our estimates for NOII and credit cost. We expect credit cost to be higher in 4QFY21 with a further build-up of conservative provisions before tapering in FY22, consequently improving the group’s earnings.

• The group recorded a marginal decline in net profit to RM100mil (-3.4% QoQ) in 3Q21 with flattish total income while provisions remained elevated.

• 9M21 core earnings of RM309mil fell 5.4% YoY attributed to higher provisions as a result of management overlays (RM223.6mil) despite recording higher total income.

• Although 9M21 earnings accounted for 85.8% of our forecast, we deemed this to be within estimate as we expect further provisions to be set aside by the group in 4Q21. Meanwhile, it was within consensus numbers, making up 79.2% of street estimates.

• Operating expenses (opex) for 9M21 decreased by 5.5% YoY contributed by lower personal, IT cost and professional fees. With lower a opex, CI ratio improved to 41.4% for 9M21. 9M21 JAW was positive 14.8% YoY.

• Gross loan growth remained subdued at 0.8% YoY in 3Q21 and continued to lag the industry’s 3.4% YoY growth.

• 3Q21 saw NIM improving by 3bps QoQ to 2.26% with lower funding cost and better deposit mix. For 9M21, the group’s NIM was compressed by 12bps YoY due to OPR cuts.

• The group’s GIL ratio rose to 2.52% from 1.75% in 2Q21 after the end of the automatic blanket moratorium. 3Q21 saw a rise in GIL ratios of personal financing, classic mortgage and AOA loans. Meanwhile, GIL ratios for SME, commercial and corporate loans were stable QoQ.

• Annualised credit cost based only on loans for 3Q21 remained elevated at 1.40%. 9M21 credit cost stood at 1.22% (annualised) comprising of RM223.6mil provisions set aside as management overlays. This was higher than our assumption of 0.80% for FY21.

• No interim dividend has been declared in the quarter.

Source: AmInvest Research - 1 Mar 2021