Investment Highlights

• We maintain our BUY recommendation on Alliance Bank Malaysia Bhd (ABMB) with unchanged fair value (FV) of RM4.40/share based on FY24F ROE of 11.4%, implying a P/BV of 1.0x.

• We make no changes to our earnings estimate and our neutral 3-star ESG rating.

• The group provided a briefing on their refreshed business strategy, ACCLER8 2027 yesterday.

• ABMB’s loans registered a higher CAGR (FY18-22) of 10.8% which outpaced the industry’s 0.6%.

• The group’s market share of SME loans has risen to 5% as at end-FY22 vs. 3.4% in FY18.

• FY22 saw an increase in the new-to-bank SME customer acquisitions, supported by various business channels. Meanwhile, the digital acquisitions of new-to-bank consumer customers have risen in FY22. The group has doubled the number of dual personal-business banking relationships in FY22 and improved its operating efficiencies through a higher mix of digital transactions.

• The refined strategy will expand on its existing focus as the preferred bank for business owners. Also, ABMB intends to replicate the present success in SMEs to the other attractive segments/ecosystems. This will broaden its vision to become the preferred banking partner.

• The ACCELER8 2027 strategy will focus on: i) improving speed (turnaround time and new product launches), ii) service, and iii) personalisation of solutions for the customers.
  The group’s refined business strategy will be supported by 8 pillars as follows (refer Exhibit 1):
  i. Expansion on SME business by increasing its sales force and providing them with better digital tools. Also, it plans to widen its SME base via digital channels;
  ii. To be the main banker for businesses across their lifecycle (from small to large businesses aiming for IPO);
  iii. Broaden consumer business by targeting attractive segments (young professionals and high net worth customers);
  iv. Target resilient ecosystems across their value chains with comprehensive solutions;
  v. To become the regional champion for selected economic corridors while delivering fast and relevant solutions to clients;
  vi. To drive synergies and value creation in corporate and capital market business;
  vii. Focusing on unique and innovative propositions to drive the Islamic banking business, and
  viii. To leverage on strategic partnerships to expand its distribution reach and product offerings.
• By the end of 2027 through the refreshed strategy, the group aims to achieve the following financial targets: i) top quartile ROE among its peers of >11%, ii) above-industry loan growth of 8-10%, iii) cost-to-income (CI) ratio of 45%, and iv) maintain a dividend payout policy of 50%. The financial targets are seen as realistic based on the financial performance achieved in 1HFY23. Additionally, ABMB targets to attain the best-in-class net promoter score and turnaround time, to be the top employer of choice, achieve a high FTSE4Good score and strong recognition for ESG.
• In the next few years leading to FY27, investments in digitisation and technology modernisation will be expected.

• Information on the revamped business strategy is still sketchy as of now. Further details are likely to be disclosed in the upcoming 3QFY23 results briefing on 28 February.

• The stock is trading at an undemanding FY24F P/BV of 0.8x, below its 5-years historical average PB/V of 0.9x and offers an attractive dividend yield of 6.5%.

Source: AmInvest Research - 12 Jan 2023