Investment Highlights

• We maintain BUY on Alliance Bank Malaysia (ABMB) with an unchanged fair value (FV) of RM3.80/share. Our FV is based on FY23 ROE of 9.7%, implying a P/BV of 0.9x. No changes to our earnings estimates.

• The group provided the latest update on its sustainability strategy yesterday.

• ABMB aims to be the preferred bank of business owners and with a mission to build alliances to improve lives.

• By business segment, ABMB aspires to be among the top 4 players in SMEs. Meanwhile, for consumer banking, it seeks to be the personal banker of choice for business owners.

• The top ESG priorities by FY25 are: i) RM5bil expansion in new sustainable loans/investments; ii) assisting customers to embed sustainable lifestyle and business practices; and iii) to lower the bank’s greenhouse gas (GHG) emissions. Targets for the reduction of GHG emissions will be announced by 1Q23.

• ABMB will focus on the following 6 key priorities on sustainable business practices:
  i. Embedding ESG practices into its business strategy and operations;
  ii. Supporting borrowers in new sustainable loans;
  iii. Assisting customers to embed sustainable practices;
  iv. Empower SMEs through education, upskilling and financing via various resources such as free webinars and information/news; 
  v. Promoting financial literacy to vulnerable communities, for example, through programmes, social media outreach; and 
  vi. Providing digital solutions to drive the group’s transformation
• The group has rolled out an ESG screener to evaluate new loans and credit reviews. 
  Loans will now be categorised based on climate risk according to BNM’s climate change and principal-based taxonomy (CCPT) guidelines.
• ABMB has adopted a stance of not financing the coal, unconventional oil & gas, entertainment, arm trading sectors, projects causing environmental damage and hostile takeovers of companies. Also, it has rolled out the risk acceptance criteria (RAC) for 4 sectors sensitive to ESG: i) palm oil; ii) mining and quarrying; iii) oil & gas; as well as iv) forestry and logging. We understand that the group’s exposure to these 4 sectors stands at less than 3.5% of its total loans. Of the 4 sectors, its exposure to palm oil is the largest while the remaining 3 sectors accounted for less than 1.0% each of the group’s total loans.
• In 2022, the group will start disclosing climate-related financial details. Additionally, sustainability updates will be disclosed through quarterly results briefings, social media and news releases. Sustainable loans and investment propositions will also be rolled out in 2022.

• A group sustainable committee (GSC) has been established on 24 June 2021. This committee assists the board of directors in overseeing sustainability issues and provides inputs to the management on sustainable strategy and initiatives.

• With the healthy capital position, we continue to see room for potentially higher dividend payout between 45.0% and 50.0% from the present 40.0% in 6M22. Prior to Covid-19, the group in FY18 and FY19 had declared dividends with payout ratios of 48.0%.

• Foreign shareholdings for the stock has risen to 20.09% in Dec 2021 vs. 18.88% in Sep 2021.

Source: AmInvest Research - 20 Jan 2022