• Keep BUY, with new MYR5.10 TP from MYR4.80, 15% upside and c.5% FY25F (Mar) yield. 1QFY25 results came in within expectations. Key highlights from the set include continued strong loans growth and resilient NIM, while credit costs were up from a low base. We continue to prefer Alliance Bank Malaysia among the smaller banks for its good balance between loans growth, NIM, and asset quality.

• Results review. ABMB’s 1QFY25 net profit of MYR176.7m (-1% QoQ, +17% YoY) met expectations, at 24% of our and consensus full-year estimates. The YoY strength was mainly driven by total income growth of 16%, from NII (+17%) and non-II (+4%). Opex was well contained, growing by a slower 13% YoY, which led to a lower CIR of 48.0% (1QFY24: 49.3%), in line with guidance of c.48%. Credit costs of 32bps (1QFY24: 28bps) also came in within guidance. On a QoQ basis, PBT was up 2% QoQ on operating income growth of 5% and positive JAWs, though mitigated by higher credit costs (4QFY24: 26bps). All in, reported ROE of 10.0% (1QFY24: 9.1%, 4QFY24: 10.5%) is in line with the FY25F target of >10%.

• Seeing good growth. ABMB’s gross loans grew 15% YoY (QoQ: +2%) to MYR57.1bn, driven by all segments. The group is seeing good growth across the board, particularly in construction, real estate and business activities for its non-retail portfolio. Management also highlighted that it intends to capture downstream opportunities related to data centres, where there is a higher concentration of smaller businesses that are more along the bank’s niche. Separately, we also note that the group’s treasury assets portfolio has expanded 11% YoY, which puts it in a favourable position to capitalise on falling yields.

• Some downside to NIM expected? NIM rose 2bps YoY (flat QoQ) to land at 2.45%, ie at the top end of management’s 2.40-2.45% guidance. This range was kept, which in our view, implies potential yield pressure given: i) ABMB’s strong loans growth momentum; and ii) the competitive loans landscape, particularly for mortgages and SME loans. We are not overly concerned, as any potential NIM squeeze could be mitigated by an acceleration in treasury and markets non-II in the coming quarters.

• A temporary spike in GILs. Absolute GIL rose 5% QoQ (YoY: -5%), while the GIL ratio added 6bps QoQ to 2.17% (1QFY24: 2.63%). We understand the rise in delinquencies was partly due to seasonality factors, and that flow rates improved in Jul 2024. Management is committed to keeping its LLC (including regulatory reserves) above 100% (1QFY25: 112%).

• Forecasts unchanged, but our TP is raised to MYR5.10 from MYR4.80 as we update our GGM model for the latest house assumptions. Our TP includes a 6% ESG premium.

Source: RHB Research - 30 Aug 2024