Alliance Bank (ABM) reported a commendable 1HFY19 with net profit of RM276.9m (+7.4% yoy) while 2QFY19 at RM140.5m (+14.4% yoy; +3% qoq). Results was broadly within our and market expectations, although we expect more overheads with respect to the transformation project to be incurred in 2HFY19 while non-interest income may potentially moderate further. Fund-based income was the primary driver in 1HFY19, as NIM continued to expand +9bps yoy to driven by robust growth of the higher risk-adjusted return (RAR) loans (Alliance One Account, SME & Commercial, unsecured consumer). The period also saw the repayment of some business accounts, of which have led to the writeback of credit charges. Reiterate BUY, Price Target unchanged at RM5.00 (at a 1.35x CY19E P/BV target).

A Decent Quarter Driven by Fund-based Income; GIL Ratio Weakened

Alliance Bank Malaysia (ABM) reported a robust 7.4% yoy growth in 1HFY19 net profit to RM276.9m, while 2QFY19 net profit saw a 14.4% yoy and 3.0% qoq growth. Results appeared broadly within our estimates though below consensus. 1HFY19 fund-based income (+8.2% yoy) remains the key operating profit driver (accounting for 82% of total net income), as NIM continued expanding by +9bps yoy to 2.44% while simultanouesly being sustained by a CASA ratio of 37.3%. On the other hand 1HFY19 non-interest income (-17.3% yoy) was weakened by a sharper decline in the FX business, lower wealth management fees and higher structured investment costs. 1HFY19 net credit charge edged down to 28.6bps from 32.5bps (1HFY18) due to writeback from repayment of several major business accounts and regularized mortgage accounts.

Robust Loan Growth Above Industry, Thanks to Higher RAR Loans

As at Sept18, ABM saw outstanding loans up 5.2% yoy, driven by higher RAR loans (39% of portfolio) of which grew by 24.7% yoy. Meanwhile, the lower RAR loans declined by 4.5% yoy.

Maintain BUY; PT Unchanged at RM5.00

We maintain our BUY rating on ABM, with an unchanged 12-month Price Target of RM5.00 (based on 1.3x CY19E P/BV target, underpinned by a CY19E ROE of 10.0% and an 8.2% cost of equity. Our FY19E assumptions are based on modest loan growth target of 3.7% yoy, NIM at circa 2.4%, credit cost at 35bps, CIR at 48.6%. ABM’s management is still maintaining a net profit growth target of >10% with ROE at circa 10%. Downside risks – weaker economic outlook, NIM compression, asset quality issues.

Source: Affin Hwang Research - 30 Nov 2018