Review

• Alliance Bank (ABMB) reported an encouraging set of 1HFY25 results, with net profit rising 9.1% YoY to RM366.6mn. The stronger 1H performance was anchored by a combination of higher operating income and lower operating expenses. Despite that, ABMB’s results came within expectations, with the YTD net profit at 50% of ours and the consensus forecast.

• A first interim dividend of 9.5 sen per share (1HFY24: 10.85 sen per share) has been proposed. This represents a payout of c. 40%.

• Combined with Islamic net financing income, total net interest income (NII) jumped 15.0% YoY due to higher loan volume and a more stable net interest margin (NIM) trend. YTD NIM slipped by 1 bp to 2.47%, compared to the 16 bps YoY decline in FY24. Sequentially, NIM broadened by 4 bps to 2.49% vs 2.45% in 1QFY25.

• Loan growth accelerated at a more robust pace of 14.8% YoY (FY24: +13.6% YoY) to RM59.1bn, exceeding management's target of 8-10% for FY25. The yearly improvement was broad-based. Commercial and Corporate Banking loans rose by 16.2% and 11.6% YoY in the business segment, while SME loans accelerated by 16.4% YoY due to strong demand for term loans. Consumer banking loans remained on a growth trajectory (+14.3% YoY), supported by personal financing (+16.7% YoY) and mortgages (+12.4% YoY). There was also strong demand for share margin financing, which grew by 29.3% YoY.

• Total deposits rose 13.8% YoY, underpinned by FDs (+27.4% YoY) and CASA (+5.3% YoY). While ABMB’s CASA ratio has narrowed marginally to 40.9%, it remains one of the highest among banking peers.

• Including Islamic Financing, non-interest income (non-NII) grew by 16.1% YoY, thanks to higher client base fee income where, Wealth Management broadened by 13.3% YoY and FX sales and trade fees grew by 19.0% YoY. ABMB also registered a higher treasury & investment income of RM28.5mn due to higher AFS gains and net trading revenue. Meanwhile, banking services fees declined by RM25.5mn YoY.

• Net credit cost (NCC) climbed to 24.5 bps in 1HFY25 vs 14.8 bps a year ago due to the absence of overlays writeback. In more detail, although BAU NCC improved YoY, pre-emptive provision registered a slight uptick of 3.9 bps due to several corporate accounts. Despite that, the annualised NCC of 24.5 bps still trails management’s FY25 guidance of 30- 35 bps.

• Meanwhile, ABMB’s gross impaired loans ratio improved to 2.02% from 2.17% in 1QFY25. Compared to a year ago, the GIL ratio improved by 49 bps due to improvements in the Commercial & Corporate (-50 bps YoY) and the Consumer segment (-80 bps YoY). There was, however, a slight 20 bps increase in the GIL ratio for SMEs. Elsewhere, the loan loss coverage ratio was at 112.1% (1HFY24: 120.0%).

• Elsewhere, total overhead expenses increased by 11.8% YoY, mainly attributed to higher personnel expenses from increased 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 positive JAWs, ABMB’s 1HFY25 cost-to-income ratio improved to 46.5% (1HFY24: 48.0%) – within the guidance of keeping the CTI ratio at around 48%.

• Lastly, the group’s CET1 Capital Ratio and total capital ratio stood above regulatory requirements at 12.4% and 17.1%, respectively. Meanwhile, ABMB also reported a healthy liquidity position as the liquidity coverage and net stable funding ratios stood at 149.5% and 114.8%, respectively.

Impact

• No change to our earnings estimates.

Outlook

• ABMB continues to show strong growth across its various business segments, with management's guidance staying aligned with key indicators. Management has reaffirmed its FY25 targets, anticipating loan growth to range between 8-10%, supported by solid momentum in core segments. Nevertheless, increased competition could exert pressure on NIM, potentially bringing it down to a range of 2.40-2.45%, compared to 2.48% in FY24.

• In other areas, the net credit cost is expected to rise to 30-35 bps, an increase from 25.8 bps in FY24. Despite these challenges, management remains optimistic about keeping ROE >10% (FY24: 10.2%), bolstered by continuous initiatives aimed at keeping the CTI ratio close to 48% (FY24: 48.2%).

• Furthermore, the ACCELER8 2027 strategy is well on track, with most of its pillars on course to achieve objectives like expanding market share, increasing non-NII, and enhancing Islamic financing.

Valuation

• Rolling the valuation base year forward to FY26, we raised ABMB’s TP from RM5.00 to RM5.50. Our valuation is based on an implied PBV of c. 1.1x based on the Gordon Growth Model. We reiterate our BUY recommendation on ABMB.

Source: TA Research - 29 Nov 2024