Alliance Bank Malaysia Berhad - Improvement in Client Based Fee Income

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  • Alliance Bank (ABMB) reported a weaker set of 3QFY24 results. 9MFY24 net profit decreased by 6.4% YoY to RM512.7mn owing to higher operating expenses and a slight increase in the net credit cost. Despite that, ABMB’s results came within expectations, with the YTD net profit at 76% and 77% of ours and the consensus full-year forecast.
  • Combined with Islamic net financing income, total net interest income (NII) climbed 1.8% YoY due to higher loan volume and better asset yields due to the OPR hike. Despite that, the net interest margins (NIM) were compressed by 16bps YTD to 2.48% (FY23: 2.64%) due to the higher cost of funds. Sequentially, NIM continued to face some pressure, narrowing by another 4 bps to 2.49%
  • Loan growth accelerated at a stronger pace of 12.9% YoY (FY23: +6.2% YoY) to RM53.4bn. The yearly improvement was led by the SME segment (+16.4% YoY), which received a boost from term loans, Commercial Banking (+14.2% YoY) and Corporates (+12.5% YoY). Consumer Banking loans remained in a positive growth trajectory (+10.8% YoY), supported by Personal Financing (+20.5% YoY) and Mortgages (+6.6% YoY). Total deposits rose 11.1% YoY, underpinned by FDs (+21.6% YoY). Meanwhile, CASA deposits rebounded to growth by a healthy 9.3% YoY. The CASA ratio stood at 45.1%, remaining one of the highest among banking peers.
  • Including Islamic Financing, non-interest income (non-NII) grew by 15.6% YoY as higher Wealth Management (+16.3% YoY) from stronger banca fees, FX sales and trade fees (+16.7% YoY) and Banking services fees (+57.9% YoY) drove higher client based fee income. However, the increase in non-NII was muted by lower treasury and investment income (-RM8.1mn) and lower brokerage income (-RM5.5mn).
  • Net credit cost climbed to RM99.1mn in 9MFY24 vs RM93.8mn a year ago as the normalisation of ECL BAU was offset by the reversal of ECL overlays. The annualised net credit cost stood at 25.8 bps, trailing below management’s FY24 guidance of 30-35 bps. Meanwhile, ABMB’s gross impaired loans ratio improved sequentially to 2.33% from 2.51% in 2QFY24. Still, it deteriorated from 1.93% a year ago due to increases in the GIL ratios for the SME (+60 bps YoY) and Commercial & Corporate (+100 bps YoY). The GIL ratio for the Consumer segments remained steady at 2.7%. The loan loss coverage ratio was at 117% (9MFY23: 130.2%).
  • Elsewhere, total overhead expenses increased by 11.7% YoY, mainly attributed to higher personnel expenses from collective agreement salary adjustments and higher headcount. ABMB also reported higher IT expenses related to strategic initiatives and marketing expenses for the Consumer business and branding refresh. On the back of negative JAWs, ABMB’s 9MFY24 cost-to-income ratio climbed to 48.2% (9MFY23: 44.1%)slightly above the guidance of keeping the CTI ratio <48%.
  • Lastly, the group’s CET1 Capital Ratio and total capital ratio stood above regulatory requirements at 12.8% and 17.2%, respectively. Meanwhile, ABMB also reported a healthy liquidity position as the liquidity coverage and net stable funding ratios stood at 149.9% and 115.9%, respectively.


  • No change to our earnings estimates.


  • ABMB’s business momentum continued to demonstrate robust growth in various segments, such as the 12.9% YoY increase in loans, which exceeds management’s guidance of 8-10%. New-to-bank customer acquisition has also been impressive. According to management, NTB customers averaged 1,000 SMEs and nearly 10,000 consumers per month. Treasury assets have also witnessed substantial growth, increasing by 18.0% YoY.
  • Other key financial metrics also appear to be coming in well within targets, such as YTD NIM at 2.48%, in line with guidance, and an ROE of 10.1%. Balance sheet indicators, such as overall gross impaired loans, have also shown improvement sequentially with the credit costs within the expected range.
  • Management noted that the implementation of the ACCELER8 2027 Strategy is on track, with positive early indicators. Despite being on course for all key performance indicators, management maintains a cautiously optimistic outlook, considering both opportunities arising from Budget 2024 and NETR, as well as potential macroeconomic challenges in deposits and treasury markets.


  • Updating beta assumptions based on data obtained from Bloomberg, we adjusted ABMB’s TP to RM3.90 from RM3.80. Our valuation is based on an implied PBV of c. 0.92x based on the Gordon Growth Model. Buy reiterated on ABMB.

Source: TA Research - 28 Feb 2024

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