Investment Highlights

• We maintain BUY on Alliance Bank Malaysia (ABMB) with an unchanged fair value (FV) of RM4.10/share, pegging the stock to a P/BV of 0.9x supported by FY25F ROE of 10.5%.

• Our FY24F earnings have been raised by 4.3% to reflect a higher NOII estimate and lower credit cost. For FY25F, net profit has been tweaked lower by 1.7% to account for slightly higher CI ratio expectation. No change to our neutral 3-star ESG rating.

• The group’s NIM in 4QFY24 is expected to be stable QoQ with cost of funds (COF) and asset yield holding up. Funding cost remains elevated while housing loan rates continued to be competitive, particularly financing of properties in the primary market.

• NIM for the full FY24F is likely to come in within the guided range of 2.45-2.50%.

• Recall in 3QFY24, ABMB’s loans grew strongly by 12.9% YoY, supported by growth in all segments (SME, Commercial, Consumer and Corporate Banking). The strong loan momentum is expected to continue in 4QFY24 as we have seen the banking system’s stronger loan growth of 5.8% YoY in Feb 2024 and 5.7% YoY in Jan 2024 vs. 5.3% YoY in Dec 2023. Credit growth will be supported by expansion of loans in Penang (technology sector) and Sarawak (infrastructure sector and RE projects).

• On deposits, the availability of SavePlus as a digital savings account to depositors with interest rate of up to 3% p.a is seen as competitive to defend challenges on CASA, especially with the aggressive deposit rates offered by digital banks such as GX Bank. SavePlus has features of flexible and unlimited ATM withdrawals at no charge.

• OPEX in 4QFY24 is expected to be flattish QoQ. Moving forward, accruals for potential increase in wages for unionised workers will be done gradually, and this will not see lumpy adjustments in wages for employees under collective agreements as in 1QFY24. Meanwhile, IT spend is likely to taper going forward due to earlier front loading of expenses related to the group’s ACCELER8 2027 strategy.

• On NOII, 4QFY24 client-based fee income, which includes wealth management, fx, trade and banking services, is anticipated to be stable QoQ between RM80-90mil. However, investment and trading income is likely to be softer amidst an increase in the 10-year MGS yield QoQ.

• Improved asset quality trend as evidenced by the gradual decline in GIL ratio from the peak of 2.63% in 1QFY24 to 2.33% in 3QFY24. Stepped up collection efforts and incentives for impaired loans led to improved asset quality trend of consumer loans.

• Management overlays stood at RM157mil as of end-3QFY24. With an improving asset quality trend for consumer loans and benign asset quality for SME loans, we have factored in a credit cost projection of 25bps for the full FY24F. This is lower than the 30-35bps guided by management. We remain comforted that 70% of the group’s impaired loans are secured by collaterals with the balance covered by adequate provisions. Loan loss coverage ratio including regulatory reserves of 117% as of end-3QFY24 is close to the industry’s 119.2%.

• ABMB is in the process of carrying out stress test of climate risk with the impact assessment from floods similar to other institutions in the financial sector.

• We do not expect any significant negative impact on capital position from the potential implementation of new Basel III standards.

• 4QFY24 results are scheduled to be announced on 30 May 2024. We expect 4QFY24 net profit to be higher at RM179mil (+37.3% YoY, +1.1% QoQ), bringing the full FY24F earnings to RM691mil (+2% YoY). A 2nd dividend of 11.5 sen/share is expected to be declared, resulting in total dividends of 22.3 sen/share (payout: 50%) in FY24F.

• We are positive on ABMB premised on: i) its NIM, which is well above 2% and CASA ratio of 45.1%, one of the highest in the industry, ii) the group’s loans growing at a faster pace exceeding the industry growth rate, and iii) ROE at 10% comparable to the larger cap banking stocks with a compelling valuation at 0.8x P/BV for FY25F. Dividend yield is decent at 6.4% for FY25F.

Source: AmInvest Research - 16 Apr 2024