Investment Highlight

• We maintain BUY on Alliance Bank Malaysia (ABMB) with a higher fair value of RM4.20/share (previously: RM3.80/share). Our fair value is based on FY23 ROE of 10.5%, implying a P/BV of 1.0x. We raise our FY22/23/24 net profit by 8.2%/9.1%/11.9% to factor in lower credit cost assumptions.

• The group recorded a lower core net profit of RM148mil in 3Q22 (-19.8% QoQ). Non-interest income (NOII) dwindled with a decline in treasury and income while operating expenses (opex) rose QoQ due to higher professional and IT expenses.

• For 9M22, ABMB’s core earnings (after stripping out mod loss net of unwinding of RM12.3mil) grew 55.2% YoY to RM479mil. The improved earnings were supported by higher total income and lower provisions.

• 9M22 earnings were above expectations, accounting for 84.6% and 97.4% of our and consensus estimates respectively. The variance to our projection was due to lower-than-expected provisions.

• Opex for 9M22 grew modestly by 6.1% YoY, contributed by higher personnel, professional fees and IT expenses. 9M22 saw a slightly higher CI ratio of 42.6%.

• Gross loan growth rose to 3.0% YoY in 3Q22, supported by SME, corporate and commercial banking loans.

• NIM expanded by 24bps YTD to 2.54% driven largely by lower funding cost from deposit optimisation and reprising of deposits.

• The group’s GIL ratio declined to 2.32%. Delinquencies for classic SME and consumer loans improved QoQ. For corporate loans, delinquencies were stable while that for commercial loans were slightly up due to one account.

• Further provisions (management overlays) of RM30mil were booked in 3Q22. This brought total management overlay provisions to RM117mil as of end-9M22. Total overlays accumulated since FY21 were RM429.7mil.

• Annualised credit cost based solely on loan impairments was 0.43% in 9M22, lower than expected. Management is now guiding for a lower credit cost of <0.55% for FY22.

Source: AmInvest Research - 1 Mar 2022