• Keep NEUTRAL and MYR3.50 TP, 4% upside and c.6% FY24F (Mar) yield. FY23 earnings were in line. For FY24, Alliance Bank is targeting above-industry loan growth to counter the expected NIM compression. While asset quality remains manageable, the rise in GILs and a subdued earnings outlook could weigh on share price performance in the near term.

• FY23 results review. FY23 earnings of MYR677.8m (+18% YoY) came within our and Street’s estimates. NII grew 11% on greater loans volume (+6% YoY) and an 11bps NIM uplift from overnight policy rate or OPR hikes. Non-II fell 32% YoY on weaker fee and trading income, but this was offset by easing credit costs of 33bps (FY22: 49bps). ROE of 10.3% was ahead of the 10% target for the year. A second interim DPS of 10 sen was declared, bringing the FY23 total to 22 sen (c.50% payout).

• Aiming higher on loans growth. Gross loans growth of 6% YoY came in ahead of the 4-5% FY23 guidance. In FY24, management is targeting 8- 10% growth, which will be driven by double-digit growth in its SME portfolio, and supported by the consumer and corporate banking franchises. Deposits growth, particularly CASA, will also be a key focus in FY24. The CASA ratio slipped 7ppts YoY in FY23 to 41.9%, but ABMB has set up dedicated deposit teams to defend its CASA position. A NIM guidance of 2.50-2.55% was provided for FY24, implying a 9-14bps compression YoY.

• Rise in GILs within expectations. Total GILs of MYR1.2bn was a 35% increase QoQ, which was largely due to the impairment of one corporate account from the construction sector, which was fully provided for. The GIL ratio surged to 2.5% (Dec 2022: 1.9%), though management guided that the rise was within expectations post expiry of various repayment assistance programmes. The 30-day-past-due ratio also appears to be trending southwards, which ABMB views as a positive. Credit cost guidance of 30-35bps was provided for FY24 vs the FY23 number of 33bps.

• Other guidance. As the bank progresses on its ACCELER8 2027 strategy roadmap, CIR is expected to rise YoY but remain below 48% in FY24 (FY23: 46%). Given guidance for NIM compression and higher CIR, along with a smaller non-II post disposal of its stockbroking business, the ROE target of 10.5% appears optimistic in our view.

• We trim FY24F-25F earnings by 3-4% and introduce FY26F numbers in this report (Figure 2). Our TP is kept at MYR3.50, as the earnings adjustments are offset by a higher ESG premium of 6% from the prior 2%.

• ESG framework update. As there is greater focus on the E pillar due to critical climate change issues, we have tweaked our ESG weightage. Henceforth, we assign a weightage of 50% to the E pillar, followed by 25% each to the S and G pillars. Further details are in our 2 May thematic research note titled Envisioning a Better Future.

Source: RHB Research - 31 May 2023