• Maintain BUY, new MYR4.80 TP from MYR4.40, 22% upside. Following our meeting with a representative of Alliance Bank Malaysia’s management team, we note that its YTD loans growth remains strong, but NIM could face pressure from lower asset yields. We continue to favour ABMB among the smaller-cap banks, given its compelling valuation (0.8x P/BV vs 10% ROE) and solid loan growth prospects, while its FY25F dividend yield of 6-7% is decent, especially for a fast-growing bank.

• Seeing good growth. Management indicated that YTD loan growth across the board has been good, and it expects to continue charting above-industry growth rates (8-10% YoY) in FY25, albeit at a slower pace vs FY24’s 14% given the more competitive loan market. Geographically, the bank hopes to gain market share in the northern region (manufacturing, semiconductors), Johor (data centre supply chain players) and Sarawak (green power generation). However, it has yet to see the trickle-down of foreign direct investments into the banking system and loan applications, though primary contractors involved in domestic infrastructure projects are now more actively looking for financing.

• NIM trends. Management noted that the competition for loans has been stiff, and is especially pronounced in the residential mortgage and SME segments. Additionally, deposit costs are facing pressure from the digital banks and their aggressive acquisition strategies. As a workaround, ABMB will ease up on deposit growth, as it still has a healthy loans-to-funds ratio of 88.9% (FY23: 88.0%). The group will also de-emphasise growth in mortgages and pivot some funds towards treasury assets, which are less capital-intensive and offer profit-taking opportunities in an environment of interest rate cuts.

• Asset quality intact. Management noted that asset quality has performed within expectations YTD (FY25F credit cost guidance of 30-35bps). ABMB had also mentioned it was working towards some recoveries in FY25F.

• ESG updates. In FY24, ABMB’s total operational emissions decreased by 18% reduction vs its FY20 baseline. The group has also begun reporting its Scope 3 financed emissions, and it has identified eight high-emissions intensity sectors to prioritise engagements with. The FY24 sustainability statement included several indicators that were subject to external assurance (eg new sustainable banking business, operational emissions), which is an improvement from its internally assured FY23 sustainability statement. With these developments, we raised ABMB’s ESG score to 3.3 from 3.2, placing it among the highest ESG-scoring banks under our coverage.

• No changes to forecasts. We lift our TP to MYR4.80 after rolling forward our valuation base year to CY25F and incorporating the abovementioned higher ESG score.

Source: RHB Research - 6 Aug 2024