• Although Alliance Bank’s 1HFY3/24 NP accounted for 47% of our full-year forecast, we deem this in-line as we expect a stronger 2HFY3/24F NP.

• Alliance managed to record a solid 10bp qoq expansion in its NIM in 2QFY24, by purging some of its high-cost deposits.

• We maintain our Hold call. Compared to other local banks, Alliance has a relatively smaller management overlay to shield it from increases in provision.

1HFY3/24 NP Within Our Expectations

Although Alliance Bank’s 1HFY3/24 net profit (NP) accounted for 47% of our full-year forecast (50% of Bloomberg consensus’ estimate), we deem the results in-line. This is premised on our expectation of a stronger NP in 2HFY24, given the pick-up in loan growth and recovery in net interest margin (NIM) in 2QFY24. The interim DPS of 10.9 sen was also largely in line with our expectations. 1HFY24 NP dipped by 9.4% yoy due to higher costs (+13.9% yoy for overheads and +30.5% for loan loss provisioning, or LLP). Conversely, 2QFY24 NP advanced by 17% yoy, driven by a 68.7% yoy surge in noninterest income and 46.6% yoy plunge in loan loss provisioning.

An Impressive 10bp Qoq Recovery in NIM in 2QFY24

A results bright spot was the solid 10bp qoq recovery in NIM in 2QFY24, which is the strongest in the sector, based on our observation. According to the bank, this was achieved by purging some of its high-cost deposits, while being disciplined in the pricing of loans, even in its quest to speed up loan growth.

Projecting 21.7% Yoy Growth in 2HFY24F NP

We are projecting a NP of RM373.9m in 2HFY24F, representing a strong yoy growth of 21.7%. The earnings catalysts in 2HFY24F would be improvements in loan growth, decline in LLP, and higher non-interest income, in line with the trends in the past two quarters.

Alliance Bank’s KPIs for FY24F

Alliance Bank’s KPIs for FY24F are (1) loan growth of 8-10%, (2) NIM of between 2.45% and 2.5%, and (3) net credit cost of 30-35bp. We believe these KPIs are largely achievable based on its financial performance in 1HFY24.

Reiterate Hold on Alliance Bank

Despite the improvements in its loan growth, we maintain our Hold call, as compared to other local banks, Alliance Bank has a relatively smaller management overlay to shield it from any increases in LLP (or for further write-backs). Key upside risk would be further improvements in loan growth, while a key downside risk is compression in NIM. We prefer RHB Bank for exposure to the sector. We maintain our FY24-26F EPS forecasts for Alliance Bank but raise our DDM-based target price (TP) from RM3.50 to RM3.70 (cost of equity of 10%; terminal growth rate of 4%) as we roll over the TP to end-CY24F.

Source: CGS-CIMB Research - 30 Nov 2023