Investment Highlight

• We maintain our BUY recommendation on Alliance Bank Malaysia (ABMB) with an unchanged fair value (FV) of RM4.40/share based on FY24F ROE of 11.1%, leading to a P/BV of 1.0x. No change to our neutral 3-star ESG rating.

• We fine-tuned our FY23F/24F/25F earnings by -0.1%/-2.9%/- 3.7% after lowering our NIM assumptions and loan growth estimates.

• 9MFY23 earnings were within expectations, accounting for 76% of our FY23F net profit and 80% of consensus estimate.

• 9MFY23 core earnings came in at RM548mil (+14.3%YoY) supported by stronger NII and lower provisions, partially offset by lower NOII from a decline in client base, treasury and investment income as well as increase in operating expenses (opex).

• The group recorded an improved core net profit of RM177mil in 3QFY23 (+11.8% QoQ). This was contributed by higher net interest income (NII) from an increase in net interest margin (NIM) and loan volume coupled with lower provisions on a net writeback in management overlays of RM50.3mil. Non-interest income (NOII) declined QoQ in 3QFY23 due to a drop in treasury and market income.

• The group reported an annualised net credit cost of 26bps in 9MFY23 which was within management’s guidance of 35-40bps for FY23F. 9MFY23 saw a total release in overlays of RM153mil for the pandemic. With a top up in provisions for credit model refinements of RM53.1mil and a corporate loan account of RM30mil related to the construction sector, the net release of overlays were RM69.4mil. This reduces total outstanding overlays to RM380mil.

• Opex for 9MFY23 grew by 6% YoY contributed by higher personnel, IT and marketing expenses. This led to a CI ratio of 44.1%, within management’s guidance of <45% for FY23F.

• Gross loan growth moderated to 6.2% YoY in 3QFY23 vs. 6.7% YoY in 2QFY23. Loan expansion was supported by growth in consumer (personal financing and mortgage), SME and commercial banking financing, partially offset by a slowdown in corporate loans. We understand the disbursements for end-financing has been slow while that the group is cautious on corporate loans. ABMB has revised its loan growth target down to 4%-5% from 6%-8% previously for FY23F.

• YTD NIM expanded by 15bps to 2.68% driven by OPR hikes. 3QFY23 saw a NIM improvment by 5bps QoQ to 2.75%.

• Slight uptick in group’s GIL ratio to 1.93% in 3QFY22 from 1.87% in 2QFY22. No interim dividend has been declared.

Source: AmInvest Research - 1 Mar 2023