Investment Highlight

• We maintain our BUY recommendation on Alliance Bank Malaysia (ABMB) with unchanged fair value (FV) of RM4.60/share based on FY24 ROE of 11.6%, leading to a P/BV of 1.0x. No change to our neutral 3-star ESG rating.

• We tweak our FY23F/24F/25F earnings higher by 6%/3%/11% after lowering our credit cost assumptions. However, 1QFY23 earnings were within expectations, accounting for 30% of our estimate. It was slightly ahead of consensus forecast, making up 32% of street projection.

• The group recorded a stronger core net profit of RM212mil in 1QFY23 (+39% YoY). This was contributed by higher net interest income (NII) as result of loan expansion and better net interest margin (NIM), coupled with write-back in allowances for loan losses.

• 1QFY23 saw higher client-based fee income from wealth management, FX sales and trade fees offset by lower treasury, investment and brokerage income.

• The group reported a net write-back in provisions of RM17mil in 1QFY23 which led to a credit cost of -15bps (annualised). This was contributed by the recovery of a single ccount of RM17.5mil and the release of management overlays amounting to RM41mil following the graduation of loan accounts from financial assistance. Total management overlays were reduced to RM408mil.

• Opex for 1QFY23 grew by 8.9% YoY contributed by higher IT, marketing expenses, personal cost (wage inflation) and investments in sales force. This led to a CI ratio of 44%, within management guidance of <45% for FY23.

• Gross loan growth accelerated to 6.7% YoY in 1QFY23, higher than the industry growth of 5.6% YoY. This was driven by an expansion in SME, corporate and commercial banking loans. Meanwhile, consumer loan growth stayed subdued but is expected to pick up pace ahead, supported by a healthy pipeline of mortgage loans.

• YTD, NIM expanded by 4bps to 2.57%, driven by higher loan volume and the OPR hike. Every 25bps hike in the OPR will lift the group’s NIM by 4bps or RM20–25mil in interest income.

• The group’s GIL ratio was sustained at 1.8%. GIL ratio for SME and commercial loans was stable while that for corporate loans decreased QoQ. In contrast, consumer loans saw a slight uptick in the GIL ratio.

• The stock is trading at an undemanding FY24F P/BV of 0.8x and offers an attractive dividend yield of 10% based on a normalised dividend payout. Fundamentals are improving with a better asset quality trend leading to higher ROEs ahead.

Source: AmInvest Research - 1 Sept 2022