Alliance’s 1H19 net profit of RM276.9m (+7.4%) came in line, representing 45% and 48% of our and consensus full-year estimates. Loan growth advanced faster by 5.2% YoY, as the growth was supported by higher RAR loans of +24.7% YoY. Total deposit was flat, rising only +0.6% YoY through the accumulation of expensive deposits. NIM expanded by 1bps QoQ to 2.44% in line with strong growth in higher RAR loans. No change to our forecasts, and GGM-derived TP of RM4.80, (COE 10.8% and WACC of 8.6%). Maintain BUY rating.

Results in line. 2Q19 net profit of RM140.5m (QoQ: +3%; YoY:+14.4%) took 1H19 net profit to RM276.9m (+7.4%). The results came in line, representing 45% and 48% of our and consensus full-year estimates.

QoQ. 2QFY19 total operating income eased marginally by -0.5%, driven mainly by lower NOII (arising from lower net gains from investment securities), however it was more than offset by lower loan loss allowance by RM16.3m (vs. RM37.3m in 1Q19) and resulting modest net profit growth by 3%. Meanwhile, opex climbed 4.6% mainly driven by higher establishment cost by 15%

YoY. Net profit surged 14.4% as lower loan loss allowance by 37.3% was partly mitigated by weak NOII by -24.4% (linked to weaker contribution net gains from investment securities). NII grew faster by 8.5% driven by higher growth in higher RAR loan which carries higher asset yield.

Loans. Loan growth advanced faster by 5.2% YoY, as the growth was supported by higher RAR loans of +24.7% YoY while lower RAR loans moderated by 4.5%, mostly caused by traditional mortgage and hire purchase. Commendably, higher RAR loan composition now attributed 39% of its total loan vs. 37% as at end-Jun-18.

Deposits. Total deposit was flat, rising only +0.6% YoY through the accumulation of expensive deposits which led to marginally lower CASA composition to 37.3% vs. 37.4% as at end-Jun-18.

NIM. Alliance’s NIM expanded by 1bps QoQ to 2.44% in line with strong growth in higher RAR loans. NIM was in line with the company’s targeted average NIM of 2.40% for FY19F.

Asset quality. Credit cost trending lower to 14.3bps vs 16.3bps in 1H18 stemming from higher recoveries. Positively, GIL ratio trending slower to 0.88% vs. 0.97% in 1Q18 driven from repayment of several major business accounts in non-residential properties & working capital.

Forecast. We Leave Our Forecast Unchanged.

Maintain BUY, TP: RM4.80. Alliance has shown very good progress in its AOA and SME segment of which it translated into high loan growth and better NIM upwards. However we understand expenses will be tapered off in FY19 as Alliance completes its initiative on both products. Maintain BUY, unchanged TP of RM4.80 based on GGM-derived of (i) COE of 10.8%, and (ii) WACC of 8.6%.

Source: Hong Leong Investment Bank Research - 30 Nov 2018