• Maintain BUY and MYR4.20 TP, 12% upside and c.6% FY25F (Mar) yield. Alliance Bank Malaysia is scheduled to release its 4QFY24 results on 30 May 2024. Our 4Q net profit forecast of MYR155m implies YoY strength but QoQ weakness – the former due to improved NII and credit costs, and the latter due to seasonally higher opex. ABMB remains our preferred pick among non- KLCI banks for its bright loan growth prospects and undemanding valuation.

• To benefit from strong system loans growth. The banking system’s loans growth of 6% YoY in 1QCY24 (QoQ: +1%) should filter through nicely for ABMB, with the particularly strong numbers from households (residential mortgages) and SMEs. NIM, however, could see some QoQ pressure from deposit gathering initiatives, as ABMB sought to shore up liquidity (Dec 2023 LDR looked a bit stretched at 98%), and to a smaller extent, the residual effects of the seasonal deposit competition. All in, full-year NIM could land at the lower end of management’s 2.45-2.50% guidance (9MFY24: 2.48%), but the compression should be mitigated by loans growth landing at the higher end of the 8-10% target. We anticipate NII to show positive growth YoY, and stay more or less flat QoQ.

• Non-II momentum still decent. We expect non-II in 4QFY24 to be decent, supported by loan-related fees, bancassurance, and wealth management fees. Stability of the MGS 10-year bond yield during the quarter, however, points towards potentially muted trading income.

• No major surprises on costs. Seasonality effects could push opex up sequentially (mostly personnel-led), but opex should trend downwards moving forward as most of the cost-intensive strategy-related investments have been completed. Elsewhere, management did not note any significant deterioration in asset quality, as such, its credit cost guidance of 30-35bps should be comfortably met or even bettered, as 9MFY24 credit costs only amounted to 26bps on an annualised basis.

• What’s in store for dividends? We forecast a final DPS of 10.8 sen to be announced, bringing the full-year total to 21.7 sen (50% payout, FY23: 22.0 sen). Looking ahead, ABMB’s CET-1 ratio of 13.2% looks light vis-à-vis its above-industry loan growth aspirations. For now, ABMB’s payout policy remains unchanged, ie up to 60% of net earnings, and our FY25-26 payout assumptions are also maintained at 50%.

• What are we watching out for? We would like to hear more about ABMB’s plans to balance growth and cash returns to shareholders. We also look forward to receiving management’s guidance for FY25F – given ongoing initiatives to improve collections and funding cost, as well as the gradual decline in strategy-related investments, we think FY25F ROE guidance could see an upgrade from the 10% target for FY24F.

• Valuation and TP. No changes to our forecasts. Our TP is maintained at MYR4.20 and includes a 4% ESG premium.

Source: RHB Research - 15 May 2024