Kenanga Research & Investment

Alliance Bank Malaysia - Some Hurdles to Loans Growth

Publish date: Wed, 01 Mar 2023, 11:32 AM

9MFY23 net earnings of RM547.7m (+17%) came within expectations. The group flags challenges in meeting its loans growth target due to trimming of its corporate account book. Still, we do not believe this will deter ABMB from keeping its solid fundamentals which are comparable to larger cap peers. Dividend yield prospects could also trail close to 7%. Maintain OUTPERFORM with a higher GGM-derived PBV TP of RM4.40 (from RM4.20). ABMB is one of our 1QCY23 Top Picks.

9MFY23 within expectations. 9MFY23 net profit of RM547.7m made up 78% of our full-year forecast and 80% of consensus full-year estimate. No dividends were declared during this quarter as expected, given the group’s tendency for half-yearly payments.

YoY, 9MFY23 total income grew by 3% as net interest income increased by 11%. A 6% expansion in loans base saw a net interest margin expansion to 2.76% (+16bps) backed by the OPR upcycle. However, this was offset by a 34% decline in non-interest income owing to treasury and investment losses. On the flipside, operating expenses rose by 6% due to higher personnel and IT related expenses, propping cost-income ratio to 44.1% (+1.5ppts). Meanwhile, credit cost was softer at 27bps (-17bps) thanks to reversal of overlays and generally fewer provisions. Overall, 9MFY23 net profit reported at RM547.7m (+17%).

Briefing highlights. Reviewing its past quarters, the group anticipates a possible miss of its FY23 target for a 6%-8% loans growth due to certain shortfalls in its corporate portfolio due to bulky repayments. Although its key consumer and SME segments are tracking favourably, it might be unable to compensate for the smaller corporate book. Hence, the group is toning down its FY23 loans growth target to 4%- 5%. Going forward, market factors allude that net interest margins will be imminent but ABMB is sheltered by its high CASA base of 45%. That said, migration to term-deposits is likely inevitable and would drag ABMB to compete in the higher-costing fixed deposit space. This is also reflected in the eroding net interest margin guidance of 2.55%-2.60% against 9MFY23’s 2.68%. On the flipside, while credit cost target indicate a toppish upcoming 4QFY23, the group may decide to write back a portion of its remaining RM380m overlays as it has done in recent quarters, signalling better-than-expected readings.

Forecasts. Post results, we lower our FY23F/FY24F earnings by 2%/5% mainly on the back of softer loans growth opportunities, in line with the group’s guidance.

Maintain OUTPERFORM with a higher TP of RM4.40 (from RM4.20). We roll over the valuation base year to CY24F for a higher applied BVPS of RM4.78 (from RM4.57) against a GGM-derived PBV of 0.88x (COE: 11%, TG: 3%, ROE: 10%). We had inputted a 5% premium to our TP based on our 4-star ESG rating appraisal, warranted by the stock’s strong green financing pipeline and its sustainable financing policies. In spite of the lower loans growth outlook, the stock’s fundamentals are still comparatively better than its larger cap peers in terms of ROE and dividend yields. Coupled with its solid efforts in driving sustainability, ABMB is one of our 1QCY23 Top Picks and also a solid ESG pick.

Risks to our call include: (i) higher-than-expected margin squeeze, (ii) lower-than-expected loans growth, (iii) worse-than-expected deterioration in asset quality, (iv) slowdown in capital market activities, (v) unfavourable currency fluctuations, and (vi) changes to OPR.

Source: Kenanga Research - 1 Mar 2023

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