Alliance Bank Malaysia (ABMB) reported a sequentially better net profit of RM150.5m (+15.6% QoQ) for 1QFY24 on account of lower loan loss provisions (- 40.5% QoQ), though weaker YoY (-29.0%) due to higher operating costs (+9.3% YoY) and the absence of loan loss write-backs seen in the corresponding period last year. Slightly missing both our and consensus forecasts at 22% of full-year numbers, we nonetheless trim FY24-FY26 net profit by 7% on average as we lower previously aggressive expectations on non-interest income growth. While we remain encouraged by overall improvements seen operationally, underpinned by its refreshed ACCELER8 2027 initiatives, we cut our call to Neutral given limited upside to our lowered dividend-based target price of RM3.80 (RM4.00 previously).

• Net interest income for 1QFY24 inched 2.4% higher YoY (+RM9.3m), sustained again by by higher loans volume (+RM22.6m) and ongoing (albeit dissipating) benefits from the cumulative policy rate hikes (+RM19.8m), though partly weighed by deposit competition (-RM26.9m). Client-based fee income (excluding brokerage) slipped 0.7% YoY to RM78.6m, with the drop in wealth management income (-RM9.1m) most telling. Non-client based income also dropped significantly due to lower treasury and investment income.

• Net interest margin (NIM) fell 9bps for the quarter (4QFY23: 2.52%), with stronger-than-expected deposit competition the primary contributor. Switching by customers in search of higher yields has also raised funding costs, reflected by the drop in CASA balances (-6.4% YoY to RM22.8bn) and gain in fixed deposit balances (+25.5% YoY to RM26.4bn). Management is now guiding for lower NIMs of between 2.45% and 2.50% for FY24 as a result.

• Loans growth is still a relatively robust +7.9% YoY, underpinned by the consumer portfolio (+7.1% YoY), while driven primarily by the SME (+13.4% YoY) and commercial (+11.7% YoY) segments. Loans growth guidance remains unchanged at between 8% and 10% for FY24.

• Asset quality remains largely under control despite incidences of newly impaired loans (Figure 4) still being somewhat elevated, with the gross impaired loans ratio slightly higher at 2.63% (4QFY23: 2.51%). Net credit cost for the quarter is at 7.1bps, with business-as-usual credit charge of 16.9bps offset by management overlay net write-backs of 9.8bps. Net credit cost guidance for FY24 is unchanged at between 30bps and 35bps. Loan loss coverage is at 120.0% (4QFY23: 123.7%) meanwhile.

Source: PublicInvest Research - 30 Aug 2023