Alliance Bank (ABM) reported a strong set of 9MFY19 results – above our expectations (though within consensus estimates) due to higher NIM, overall lower expenses and provisions. 9MFY19 net profit was up 12% yoy to RM425.8m, while on a normalized basis, net profit rose by 4.4% yoy. Management’s aggressive drive to promote the higher riskadjusted-return (RAR) loans such as the Alliance One Account, SME & Commercial, unsecured consumer have resulted in expansion of ABM’s NIM (+12bps yoy) as against industry peers’ NIM compression. Asset quality of its books remain intact (GIL ratio at 1.3%). We stay upbeat on ABM’s strategy, i.e. to focus on better returns and niche segments, and hence adjust up our 2019E-21E earnings forecasts by 10-12%. Reiterate BUY, PT raised from RM5.00 to RM5.90 (at a 1.44x CY19E P/BV target).

Stronger RAR Loan Growth Drives NIM Expansion

Alliance Bank Malaysia (ABM) reported a robust 12.0% yoy growth in 9MFY19 net profit to RM425.8m, underpinned by net operating income growth of 4.3% yoy. 9MFY19 fund-based income rose by a stronger 11% yoy (underpinned by a +6.0% yoy loan growth and NIM expansion of +12bps yoy to 2.48%). On the other hand 9MFY19 non-interest income (- 19.1% yoy) was weakened by lower wealth management fees and banking fees. Asset quality has been stable, and hence 9MFY19 net credit cost of 29.5bps (vs. 23.4bps 9MFY18) was better than guidance of 35bps.

Earnings Revision of 12.3%/10.7%/9.9% for 2019E/20E/21E

The Alliance One Account (a loan consolidation product), which has seen a 164% growth (as at Dec18, RM2.76bn outstanding) since it was introduced last April 2018, has helped to boost ABM’s NIM, which had expanded from 2.38% in 3QFY18 to 2.56% as at 3QFY19. We have also lowered our overall overheads projections for ABMB. Hence 2019E/20E/21E earnings have been revised by 12.3%/10.7%/9.9%.

Maintain BUY; PT Raised to RM5.90 From RM5.00

We maintain our BUY rating on ABM, with a revised 12-month Price Target

of RM5.90 based on 1.44x P/BV target on CY19E BVPS (from 1.3x CY19E P/BV target), underpinned by a CY19E ROE of 10.9% and an 9.1% cost of equity. Our FY19E assumptions are based on a stronger loan growth target of 4.5% yoy, NIM at circa 2.5%, credit cost at 33bps, CIR at 45%. 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 - 1 Mar 2019