Investment Highlight

• We maintain BUY on Alliance Bank Malaysia (ABMB) with higher fair value of RM3.80/share (previously: RM3.60/share). Our fair value is based on FY23 ROE of 9.6%, implying a P/BV of 0.9x. We raise our FY22/23/24 net profit by 5.8%/7.4%/7.2% to factor in higher NIM, lower operating expenses (opex) and credit cost assumptions.

• The group recorded an improved core net profit of RM184mil in 2Q22 (+20.5% QoQ) largely on the back of lower provisions.

• For 6M22, ABMB’s core earnings after stripping out mod loss net of unwinding and tax of RM18mil, grew 62.0% YoY to RM337mil. The improved earnings were supported by higher total income and lower provisions.

• 6M22 earnings were above expectations accounting for 69.1% and 76.0% of our and consensus estimates respectively. The variance to our projection was due to lower-than-expected opex and provisions.

• Opex for 6M22 grew modestly by 3.1% YoY as personnel cost rose from investments in sales force and expansion of collection team. 6M22 saw an improved CI ratio of 41.6% and positive JAW of 1.4% YoY.

• Gross loan growth remained muted at 0.2% YoY despite picking up pace in 2Q22. It continued to lag the industry which grew by 2.9% YoY.

• The group’s GIL ratio inched lower to 2.32%.

• Delinquencies for classic mortgage, AOA, SME, commercial and corporate loans were stable. Meanwhile, delinquency for personal financing increased slightly consequently raising the 30+ days’ past due for the consumer loan portfolio modestly in 2Q22.

• Further provisions (management overlays) booked in 2Q22 of RM21mil (1Q22: RM65.3mil) brought the total management overlay provisions to RM399mil as of endSep 2021.

• Annualised credit cost based solely on loan impairments was 0.59% in 6M22, which is within management’s guidance of <0.90% for FY22.

• ABMB declared a 1st interim dividend of 8.3 sen/share (payout: 40%). This compares to the payout of 22.0% and 25.0% in FY20 and FY21 respectively. Dividend payout is seen as normalising with the group’s improved earnings.

Source: AmInvest Research - 29 Nov 2021