Alliance Bank Malaysia - Strong Confidence in Loans Delivery

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Price Call: 
Last Price: 
+1.02 (30.18%)

FY23 net profit of RM677.8m (+18% YoY) and full-year dividend payment of 22.0 sen were within expectations. The group looks to  acquire a larger loans base in spite of a slower economic outlook thanks to their strong positioning in key segments. Assuming earnings and dividend payouts could sustain, ABMB is poised to  be one of the highest yielding stock among the banks. Maintain  OUTPERFORM and GGM-derived PBV TP of RM4.40.

FY23 within expectations. FY23 net profit of RM677.8m made up 98%  of our full-year forecast and 99% of consensus full-year estimates. A  second interim dividend of 10.0 sen was declared, leading to a full-year  payment of 22.0 sen. This is spot on with our expectations from an  anticipated payout of 50%.

YoY, FY23 total income grew by 3% as net interest income rose by  11%. This was driven by a 6% growth in loans on top of net interest margin (NIM) expanding by 16 bps (to 2.76%) riding on the OPR upcycle in CY22. However, non-interest income eroded 34% as treasury  and investment losses fail to recuperate. Meanwhile, cost-income ratio inched to 45.9% (+1.8ppts) as higher talent investments boosted operating expenses. Cost income ratio closed at 32 bps (-16 bps) as  the group had written back on pandemic-related overlays. Overall,  FY23 net earnings reported at RM677.8m (+18%).

Briefing highlights. Although the group had initially cautioned that  loans growth was under threat during its 3QFY23 briefing, it managed to achieve its initial target of 6%-8% and opines it could do better.

  1. The group targets an 8%-10% loans growth for FY24, premised on progressive onboarding from consumer, SMEs and commercial clients. For now, the group intends not to compromise rates and  quality, but may see the quantum being met due to its relatively smaller book size as compared to other peers.
  2. CASA erosion was mainly triggered by yield-seeking retail customers. Corporate customers are likely stickier due to their dependence on ABMB’s facilities for working capital purposes. We  note that despite the 7.0 ppts decrease in CASA readings, its 42%  rate remains at an industry-leading level.
  3. Deposit competition appears to be easing and the group looks to optimise its need to pre-fund its financing. That said, a targeted NIM  of 2.50%-2.55% is indicative for pressures to persist.
  4. Credit cost looks to remain stable at 30-35 bps for FY24. While the  group may incorporate further write-backs from its remaining  RM304m overlay, it does not discount topping up specific accounts which may be troubled by macros.
  5. Gross impaired loans remain elevated but the group does not expect levels to rise above 3%. The increase in troubled accounts could be due to continually rising interest rate pressures but these could be confined to previously enrolled Repayment Assistance accounts.

Forecasts. Post results, we lowered our FY24F earnings slightly as we  incorporate FY23’s full-year numbers. FY24F reflects an 11% earnings growth with greater dependence on interest income to lead as fee-based businesses may continue to be sluggish. While the group holds an 8%-10% loans growth target, we opt to be conservative with only 6%  assumed in our model. Meanwhile, we also introduce our FY25F  numbers.

Maintain OUTPERFORM and TP of RM4.40. Our call is based on an unchanged GGM-derived CY24F PBV of 0.88x (COE: 11%,  TG: 3%, ROE: 10%). We had inputted a 5% premium to our TP based on our 4-star ESG rating appraisal, warranted by the stock’s strong green financing pipeline and its sustainable financing policies. In spite of the lower loans growth outlook, the stock’s fundamentals are still comparatively better than its larger cap peers in terms of ROE and dividend yields. At current price points  and assuming estimated payout ratio of 50% to hold, we anticipate dividend yield to creep up to 8%.

Risks to our call include: (i) higher-than-expected margin squeeze, (ii) lower-than-expected loans growth, (iii) worse-than-expected deterioration in asset quality, (iv) slowdown in capital market activities, (v) unfavourable currency fluctuations, and (vi)  changes to OPR.

Source: Kenanga Research - 31 May 2023

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