Investment Highlights

• We maintain our BUY recommendation on Alliance Bank Malaysia (ABMB) with an unchanged fair value (FV) of RM4.00/share. Our FV is pegged to a P/BV of 0.9x supported by FY24F ROE of 10.3%.

• We fine-tuned FY23F/24F/25F earnings by -2.7%/-1.6%/- 1.6% to reflect lower NIM assumptions.

• No changes to our neutral 3-star ESG rating.

• Recall in 4QFY23, the group recorded a net interest margin (NIM) of 2.52%, a contraction of 23bps QoQ due to higher funding cost from customer deposits. Moving into 1QFY24, on a sequential basis, we expect the group’s NIM to be still compressed. However, the compression in 1QFY24 on QoQ basis is likely to be smaller than in 4QFY23, supported by an OPR hike of 25bps in May 2023 which will lift loan yield higher.

• Competition for deposits still persists. On a comforting note, we observed that FD rates through recent campaigns have tapered from the high of >4% in 3QFY23. With the gradual expiry of expensive FDs from earlier deposit campaigns, we expect an improvement to ABMB’s NIM in 2HFY24. In FY24, we have now pencilled in a higher NIM compression of 14bps (previously: 10bps).

• In FY24F, we have imputed in a loan growth assumption of 8%, higher than the FY23 expansion of 6.2% YoY. This is at the lower end of management’s guidance of 8-10% growth. We expect 1QFY24 loan growth to be decent, supported by good traction in SME and commercial loans. Meanwhile, corporate loans are expected to register positive growth, a turnaround from -7.7% YoY in 4QFY23 which was attributed to an intentional de-risking of corporate book to improve asset quality.

• The group will continue to focus on green financing. Recently, the media reported that ABMB executed a memorandum of understanding (MoU) with developer Malton to offer green mortgage financing packages to homebuyers of the its newly launched project, River Park in Bangsar South. Also, based on media highlights, ABMB has granted RM250mil green loan facility to SKS Group to finance a mixed development project in Johor Bahru.

• The bancassurance partnership with Manulife Insurance (Manulife) has just been renewed for another 15 years, extending from 2023 to 2038. The previous collaboration agreement of 10 years (2013 to 2023) with Manulife to offer innovative insurance and wealth management solutions has expired. Recall, a total fee of RM70mil was paid by Manulife to ABMB over the duration of the preceding 10-year partnership. In view that the distribution network and clientele base of ABMB have already been shared with Manulife earlier, it is likely that the total fees to be received by the group for this round’s extension of collaboration to be lower than RM70mil. Similar to the previous arrangement, the fees are expected to be paid over a duration of 15 years for the partnership extension.

• The overall GIL ratio rose to 2.5% in 4QCY23 from 1.9% in 3QFY23. This was not surprising as certain consumer loans were expected to still exhibit weakness after the expiry of payment relief programmes. In 1QFY24, a further uptick in the GIL ratio is expected to continue but is unlikely to trend higher than 3%.

• Delinquency rates in 1QFY24 are anticipated to improve compared to 4QFY23 across key loan segments, supported by a slower rate of increase in accounts which are 30 days past due. We have factored in a net credit cost assumption of 32bps in FY24F.

• The group is scheduled to release its 1QFY24 results on 29 Aug 2023. We expect the group’s earnings in 1QFY24 to be slightly softer QoQ premised on still a steep compression in NIM albeit a narrower contraction compared to 4QFY23. Nevertheless, the outlook on NIM is expected to be better in 2HFY24 and loan momentum is seen picking up pace from the recovery in corporate loan growth aside from expansions in SME and commercial loans. Meanwhile, non-interest income (NOII) is expected to be supported by decent treasury and investment income. We do not expect any negative surprises to provisions as BNM statistics in June 2023 reflected lower provisions for the banking sector compared to the end of Mar 2023. As at 4QFY23, the group’s management overlays stood at RM304mil.

• Foreign shareholdings have risen slightly to 22.46% in July 2023 vs. 22.39% in Jun 2023. Since 12 July 2023, foreign investors have turned net buyers of this stock.

• The stock is trading at an undemanding FY24F P/BV of 0.8x and offers an attractive dividend yield of 6.1% based on normalised dividend payout.

Source: AmInvest Research - 15 Aug 2023