Alliance’s 4QFY22 net profit doubled YoY given positive Jaws and lower loan loss provision. Also, loans growth gained momentum and GIL ratio improved. However, sequential NIM contracted. Overall, results were in line and hence, no change to our forecasts. The risk-reward profile of the stock remains balance, in our view. Retain Hold and GGM-TP of RM3.85, based on 0.88x FY23 P/B.

Within expectations. Alliance registered 4QFY22 net profit of RM103m (-32% QoQ, doubled YoY on a core basis, after stripping away net modification gains in 4QFY21), bringing FY22 sum to RM573m (+63% YoY). This was within expectations, making up 98-101% of our and consensus full-year forecasts.

Dividend. Declared 2nd interim DPS of 10.2sen (4QFY21: 5.79sen; FY22: 18.5sen vs FY21: 5.79sen). Ex-date: 16th June.

QoQ. The 32% decline in net profit was no thanks to negative Jaws (total income -6% vs opex +2%) and higher loan loss provision (+5-fold). At the top, net interest margin (NIM) slipped 16bp but was cushioned slightly by the 2% rise in non-interest income (NOII); this was led by stronger fees performance.

YoY. Earnings doubled on the back of positive Jaws (total income +3% vs opex -6%) and lower allowance for impaired loans (-46%). The better top-line was lifted by NIM expansion (+9bp) and loans growth (+5%).

YTD. Again, decent total income growth (+3%) together with lower provision for bad loans (-59%), catapulted net profit up by 63%.

Other key trends. Loans growth gained traction to +4.6% YoY (3QFY22: +3.0%) but deposits stayed tepid at -0.6% YoY (3QFY22: +0.7%). That said, loan-to-deposit ratio (LDR) was unchanged QoQ at 96%. As for asset quality, gross impaired loans (GIL) ratio was down 17bp sequentially to 1.85%, on the back of accounts regularization (to performing) at its consumer portfolio and larger loan base.

Outlook. NIM is seen to expand sequentially, following May-22’s OPR hike. However, the magnitude could be capped by downward normalization of CASA mix. That said, loans growth is expected to chug along for now, considering economic recovery . On a separate note, GIL ratio is likely to creep upwards but we are not overly concerned as Alliance has already made heavy pre-emptive provisioning in FY21-22 to cushion this impact. Moreover, FY23 NCC assumption pencilled in by both us and consensus are still fairly elevated (above the normalized run-rate but below FY21-22’s level).

Forecast. Unchanged since 4QFY22 results were in line.

Retain Hold and GGM-TP of RM3.85, based on 0.88x FY23 P/B with assumptions of 10.0% ROE, 10.9% COE, and 3.0% LTG. This is largely in line to its 5-year and sector mean of 0.82-0.92x; we believe the valuation is warranted given that its ROE output is comparable to pre-pandemic level and industry average. Even though Alliance is one of the prime beneficiary of OPR increase, we remain neutral on the stock, considering its elevated LDR may require the need to build deposit base quicker (leading to more pricey funding) to better support future loans growth. Also, its high CASA ratio of 49% makes it more susceptible to a reversal and potentially hit by a larger substitution to expensive FD, relative to peers.

Source: Hong Leong Investment Bank Research - 1 Jun 2022