• Maintain BUY, with new MYR4.40 TP from MYR4.20, 14% upside and c.5% FY25F (Mar) yield. Alliance Bank’s FY24 net profit of MYR690.5m came in line with our and consensus’ estimates. Our key results takeaways were stronger-than-expected loans growth and a continued decline in GILs, but dividend guidance was also eased in view of ongoing capital optimisation initiatives. Nevertheless, we think the capital preservation for growth will benefit shareholders over the longer term.

• Results review. ABMB’s 4QFY24 net profit of MYR177.7m (+37% YoY, flat QoQ) brought the full-year figure to MYR690.5m (+2% YoY). For the full year, NII grew 4% YoY as the strong 14% YoY loans growth offset the 16bps NIM compression, while non-II added 14% mostly from stronger core fees (+33%). Opex escalated 11%, leading to a CIR of 48% which was within expectations. Credit costs, however, came in below management’s target of 30-35bps. Overall, FY24 ROE stood at 10% (FY23: 10%). A second interim DPS of 11.45 sen was declared, bringing the full-year total to 22.3 sen (50% payout), slightly ahead of our forecasted 21.7 sen.

• An exceptional year for loans growth. FY24 gross loans grew 14% YoY, driven by double-digit growth across all customer segments. This came ahead of the bank’s target of 8-10% for the year. In FY25, management sees growth moderating to 8-10% YoY given stiff competition on funding and asset pricing. However, it does see room for outperformance, especially as its growth initiatives (sales force recruitment, geographical expansion) begin to contribute meaningfully.

• Continued improvement in asset quality. ABMB’s GILs reduced 5% QoQ (YoY: -4%) on the back of improvements in the consumer and corporate & commercial books. The Alliance One Accounts (AOA) in particular saw its GIL ratio improve to 6.2% from the peak of 7.4% in Jun 2023, due to a refresh in the group’s collection strategy. We think the asset quality improvements can continue in FY25F, especially as the group is de-emphasising growth in AOAs.

• Capital management is key. As part of its capital optimisation initiatives, ABMB will be looking at capital-light income sources (eg treasury investments, fee income) on top of loans growth to drive ROE in FY25F. The group also provided a dividend payout range of 40-50% for FY25F – we think the payout should hover at the higher end of the range should the initiatives turn out successful.

• Other guidance include NIM of 2.40-2.45% (3-8bps down YoY), CIR of 48% (ie flat YoY), credit costs of 30-35bps and ROE of >10%.

• Forecasts raised by 2% as the better-than-expected loans growth in FY24 filters through. Our TP is raised to MYR4.40 and includes a 4% ESG premium.

Source: RHB Research - 31 May 2024