Investment Highlight

• 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 make no changes to our earnings estimate. 1Q24 earnings were within expectations, making up 21.6% of our and 21.9% of consensus estimate.

• 1Q24 underlying earnings came in at RM151mil (-29%YoY). The decline in net profit was contributed by lower noninterest income (NOII), higher operating expenses (OPEX) and provisions which offset an increase in net interest income (NII) from an expansion in loan book.

• The lower NOII YoY was attributable to a decline in brokerage, treasury, investment and client-based fee income due to a drop in sales of structured investments.

• The group reported an annualised net credit cost of 28bps in 1Q24 which was within management’s guidance of 30- 35bps for FY24. BAU provisions of RM83mil were partially offset by the reversal in ECL overlays of RM48.3mil. As at end-1Q24, total outstanding overlays stood at RM256mil.

• In 1Q24, NIM was compressed by 21bps YTD to 2.43%, attributed to the increase in funding cost. Pressure on NIM is easing. With the gradual expiry of the expensive FDs from earlier deposit campaigns, we expect an improvement to ABMB’s NIM in 2HFY24.

• Opex in 1Q24 grew 9.3% YoY, mainly contributed by higher personnel cost from adjustment of wages under collective agreement and marketing expenses. This increased CI ratio to 49.3%.

• Loan growth accelerated to 7.9% YoY, outpacing the industry’s expansion of 4.4% YoY. This was contributed by a pickup in pace of consumer loans as well as commendable double-digit growths in SME and commercial loans.

• Group’s 1Q24 GIL ratio climbed to 2.63% from 2.51% in 4Q22 due to upticks in impairments of SME and consumer loans which encountered some pressure in debt servicing after repayment assistance programmes and impairment of a fully collateralised account in the commercial and corporate segment related to the manufacturing sector (exposure: RM50mil).

Source: AmInvest Research - 30 Aug 2023