Alliance Bank Malaysia (ABMB) saw another strong quarter on a sequential basis, with 2QFY24 net profit of RM185.3m (+17.0% YoY, +23.1% QoQ) aided by stronger net interest and non-interest income. Cumulative 1HFY24 net profit of RM335.9m, weaker by 9.4% YoY in the absence of loan loss write-backs seen in the corresponding period last year, is within our and consensus estimates at 52% and 47% of full-year numbers respectively. Business growth momentum is encouraging, with healthy credit expansion and improving funding cost pointing toward steadier income growth ahead. We keep estimates unchanged nonetheless, with macro headwinds potentially keeping a lid on more notable improvements. We continue to be encouraged by overall improvements seen operationally, underpinned by its refreshed ACCELER8 2027 initiatives, and raise our call to Trading Buy given the upside to our unchanged dividend-based target price of RM3.80.

• 1HFY24 income. Net interest income only inched 2.2% higher YoY (+RM18.2m), predominantly driven by the impact of higher loan volume (+RM54.7m) as effects of deposit competition (-RM45.4m) trumped dissipating benefits from the cumulative policy rate hikes (+RM19.8m) over the last year. Non-interest income (excluding brokerage) growth of +20.0% YoY (+RM27.2m) to RM163.1m was aided primarily by foreign exchange and traderelated fees (RM10.3m), and wealth management income (+RM7.1m).

• Net interest margin (NIM) improved 10bps to 2.53% (1QFY24: 2.43%), with relatively stronger loans volume (and mix) coinciding with improvements in funding profile. Fixed deposit balances eased off to RM25.3bn (1QFY24: RM26.4nbn) as current/savings (CASA) balances inched higher to RM22.9bn 1QFY24: RM22.8bn). CASA ratio of 44.2% is one of the highest in the industry.

• Loans growth is a notably strong +10.0% YoY, underpinned by the consumer (+8.8% YoY) and SME (+15.0% YoY) portfolios. The consumer segment continues to see ongoing traction in personal financing (+21.3% YoY) and mortgage (+5.3% YoY) loans. Growth guidance is unchanged at 8% – 10%.

• Asset quality remains relatively healthy, with 71% of gross impaired loans secured and the balance fully provided for. This is despite incidences of newlyimpaired loans (Figure 4) on a gradual rise. Gross impaired loans (GIL) ratio is lower at 2.51% (1QFY24: 2.61%). Net credit cost for the quarter is marginally higher at 7.7bps (1QFY24: 7.1bps) however, with normalized credit charge of 17.1bps (1QFY24: 16.9bps) offset by overlay net write-backs of 9.4bps (1QFY24: 9.8bps). Management opines that GIL levels have peaked however.

Source: PublicInvest Research - 1 Dec 2023