Investment Highlight

• We maintain our BUY recommendation on Alliance Bank Malaysia (ABMB) with a revised fair value (FV) of RM4.40/share from RM4.60/share previously, based on a lower FY24F ROE of 11.4%, leading to a P/BV of 1.0x. No change to our neutral 3-star ESG rating.

• 6MFY23 earnings were within expectations, accounting for 51.3% of our FY23F net profit and 54.6% of consensus.

• Hence, we have only fine-tuned our FY23F/24F/25F earnings by -0.4%/-1.5%/-2.6% after lowering our NIM assumptions and tweaking our loan growth estimates.

• The group recorded a lower core net profit of RM158mil in 2QFY23 (-25.3% QoQ). This was contributed by a decline in non-interest income (NOII) and higher provisions. NOII decreased in 2QFY23, impacted by hedging cost of RM16.7mil to hedge 1/3 of its FVOCI securities of RM8.7bil against interest rate risks.

• 6MFY23 underlying earnings came in at RM371mil (+9.8%YoY). The improvement was contributed by stronger net interest income (NII) and lower provisions partially offset by lower non-interest income (NOII) from a decline in client base, treasury and investment income.

• The group reported an annualised net credit cost of 24bps in 6MFY23. It released a further RM59mil of management overlays in 2QFY23 following the graduation of loan accounts from financial assistance. This led to a total release in overlays of RM101mil for 6MFY23. Total preemptive provisions now stand at RM431mil. The group has also raised RM51.5mil of provisions through the refinement of the credit model and RM30.1mil provisions as top-up for a corporate loan related to the construction sector.

• Opex for 6MFY23 grew by 7.6% YoY, contributed by higher personnel, IT and marketing expenses. This led to a CI ratio of 43.9%, within management guidance of <45% for FY23F.

• Gross loan expanded 6.7% YoY in 2QFY23, supported by an expansion in consumer, SME, corporate and commercial banking loans.

• YTD NIM expanded by 11bps to 2.64%, driven by higher loan volume and OPR hikes. Every 25bps increase in the OPR will lift the group’s NIM by 3bps-4bps.

• Slight uptick group’s GIL ratio to 1.87%. 2QFY23 saw a slight increase in delinquencies for consumer and SME loans following the hikes in OPR and the expiry of repayment assistance programmes. Meanwhile, an uptick in delinquencies were also observed for corporate and commercial loans due to 1 loan account.

• An interim dividend of 12 sen/share has been declared (payout of 50%).

Source: AmInvest Research - 30 Nov 2022