• Maintain BUY and MYR5.50 TP, 13% upside and c.4% FY26F (Mar) yield. Alliance Bank Malaysia’s 1HFY25 results were in line, with stronger non-II making up for higher-than-expected credit costs, which management expects to moderate. At the halfway point, the group is on track to achieving – if not exceeding – most of its FY25F targets. As ABMB continues to chart above-industry growth while maintaining margins and asset quality, we think investors will be willing to look past the lower near-term dividend payout.

• Results review. ABMB’s 2QFY25 net profit of MYR189.9m (+2% YoY, +8% QoQ) brought the 1HFY25 total to MYR366.6m (+9% YoY) – this came in line, forming 50% of our and consensus full-year estimates. On a YoY basis, healthy income growth of 15% was driven by NII (+16% from loans growth and stable NIM) and non-II (+11% on stronger treasury and markets income), while opex grew by a smaller 12%. The CIR eased 1.5ppts to 46.5% as a result, and led to strong PIOP growth of 18%. Credit costs, however, spiked to 49bps (1HFY24: 30bps), as the group booked in larger pre-emptive provisions. All in, 1HFY25 reported ROE stood at 10.3%, ahead of management’s 10% target for the year (1HFY24: 10.1%).

• ABMB declared a 9.5 sen interim DPS, translating to a 40% payout ratio. This compares to 1HFY24’s 10.9 sen and 50% payout. While the interim DPS declared fell short of our initial 11.8 sen forecast, we are not entirely surprised as management had previously alluded to potentially paying out at the lower end of its 40-50% guidance in order to preserve more capital for growth. Its CET-1 ratio of 12.4%, albeit a 50bps decline from the Mar 2024 position, remains at a comfortable level for management.

• Continues to fire on all cylinders. YoY loans growth of 15% (QoQ: +3%) was driven by all key segments, most notably households (+14%) and SME (+16%). Management sees strong momentum coming from its growth corridors of Johor, Penang and Sarawak, and from sectors such as construction, real estate and manufacturing. Management retained its 8- 10% loans growth guidance for the full-year, but did not rule out the possibly of ending the year ahead of the target.

• Expecting lower credit costs in 2HFY25. 1HFY25 credit costs of 49bps include 12bps in pre-emptive provisions booked for its construction and personal finance portfolios. Conversely, GIL ratio eased to 2.02% from 2.50% in Sep 2024 (Jun 2024: 2.17%), allowing for lower BAU expected credit loss (ECL) provisions in 1HFY25. With GIL formation also easing, ABMB thinks 2HFY25 credit costs can be lower HoH, reaching 30-35bps at year-end.

• Minimal changes to earnings forecasts, even though we revised our dividend payout assumption to 40% from 50%. Our TP is maintained at MYR5.50, and includes an unchanged 6% ESG premium.

Source: RHB Securities Research - 29 Nov 2024