Investment Highlight

• We maintain our BUY recommendation on Alliance Bank  Malaysia (ABMB) with a revised fair value (FV) of RM4.00/share (from RM4.20/share previously) based on a  lower FY24F ROE of 10.5%, leading to a P/BV of 0.9x. No  change to our neutral 3-star ESG rating.

• 12MFY23 earnings were within expectations, coming in  1%-2% below our estimate and consensus. However, we  fine-tuned our FY24F/25F earnings by -1.3%/+1.2% after  lowering NIM assumptions while raising loan growth and  CI ratio estimates.

• 12MFY23 underlying earnings came in at RM678mil  (+7.3%YoY), supported by stronger NII from OPR hikes  and loan expansion coupled with lower provisions.  However, NOII was lower YoY, attributable to declines in  brokerage, treasury, and investment income.

• The group reported an annualised net credit cost of 31bps  in 12MFY23 which was within management’s guidance of  35-40bps for FY23. The improvement was driven by a net release in management overlays (MO) of RM208mil and  recovery from a loan (RM17.5mil). This reduced total  outstanding overlays to RM304mil. 

• In 12MFY23, NIM expanded by 11bps YoY to 2.64% driven  by OPR hikes, above the target of 2.55%-2.6% for FY23.  4QFY23 saw NIM contracting by 23bps QoQ to 2.52%,  attributed to increase in funding cost.

• Opex for 12MFY23 grew 7.1% YoY contributed by higher  personnel, IT, marketing expenses and deposit insurance  cost. This led to a CI ratio of 45.9%, slightly above management’s guidance of <45% for FY23.

• The group recorded a lower core net profit of RM130mil in  4QFY23 (-26.5% QoQ). The decline was contributed by  lower net interest income (NII) from an increase in funding  cost, higher operating expenses (opex) and provisions.  Non-interest income (NOII) rose QoQ in 4QFY23 due to  stronger treasury and client-based fee income.

• Loan growth was sustained at 6.2% YoY in 4QFY23 and  exceeded the target of 4-5% set for FY23. Loan expansion  was supported by growth in consumer (personal financing  and mortgage), SME and commercial banking financing, partially offset by a contraction in corporate loans. The  decline in corporate loans was contributed by lumpy  repayments as well as the portfolio rebalancing effort to  lower the group’s risk to the segment.

• Uptick in group’s 4QFY23 GIL ratio to 2.5% from 1.9% in  3Q22 due to the impairment of a corporate loan in the  construction sector which was fully provided for as well  as BAU upticks from the exit of loans under relief.

• An interim dividend of 10 sen/share has been declared. This brings FY23 dividends to 22 sen/share (payout: 50%)  in line with our expectation. 

Source: AmInvest Research - 31 May 2023