Alliance Bank Malaysia (ABMB) recorded a relatively steady 3QFY24 net profit of RM176.9m (-0.1% YoY, -4.6% QoQ), with cumulative 9MFY24 net profit of RM512.7m (-6.4%) slightly ahead of our full-year estimates at 79% though within consensus at 76%. Business growth momentum continues to be encouraging, with healthy growth in its loans book and an improved funding cost contributing to the steady income growth. Our earnings estimates are kept unchanged as we err on the side of conservatism to account for macro headwinds which may potentially keep a lid on more notable improvements. We continue to be encouraged by overall improvements seen operationally and retain our Trading Buy call with an unchanged dividend-based target price of RM3.80.

• 9MFY24 income. Net interest income improved by 1.8% YoY (+RM22.0m), benefitting from the strong expansion in its loans book and a strengthening in asset yields as a result of past rate hikes (+RM115.7m) which trumped the cumulative negative effects of deposit rate competition and modification losses (-RM93.7m). Non-interest income growth was a more robust +15.6% YoY (+RM31.1m), contributed by higher client-based fee income (+RM44.8m) which mitigated drops in treasury/investment income (-RM8.1m) and brokerage income (-RM5.5m).
   
• Net interest margin (NIM) slipped 4bps QoQ to 2.49% (2QFY24: 2.53%) partly as a result of the strong expansion in its asset base. A comparatively robust deposit growth of +11.1% YoY with a healthy CASA ratio of 45.1% (2QFY24: 44.2%) will help mitigate possible margin compressions ahead. Management has maintained guidance at between 2.45% and 2.50% for FY24.
   
• Loans growth of +12.9% YoY is relatively broad-based, underpinned by the consumer (+10.8% YoY to RM26.5bn), SME (+16.4% YoY to RM13.9bn) and commercial (+14.2% YoY to RM7.1bn) segments. Consumer banking is driven by personal financing (+20.5% YoY) and mortgage (+6.6% YoY) loans meanwhile. Growth guidance remains unchanged at 8% – 10%.
   
• Asset quality remains a plus point, with the gross impaired loans ratio on a gradual decline (2.33%, 2QFY24: 2.51%), also reflected in the incidences of newly-impaired loans on the downtrend (Figure 4). 70% of gross impaired loans remain secured, with the balance fully provided for. Net credit cost for the quarter is a healthy 4.6bps (2QFY24: 7.7bps). Cumulatively, net credit cost of 19.4bps for 9MFY24 comprises normalized credit charge of 48.0bps which is offset by overlay net write-backs of 28.6bps. Loan loss coverage is at 117%.

Source: PublicInvest Research - 28 Feb 2024