Investment Highlights

• We maintain HOLD on Alliance Bank Malaysia (ABMB) with an unchanged fair value (FV) of RM3.60/share, pegged to a P/BV of 0.8x supported by FY24F ROE of 9.6%.

• We made no changes to our earnings estimate and our neutral 3-star ESG rating.

• In 3QFY24, group GIL ratio declined in Oct and Nov 2023 before inching up slightly in Dec 2023. Hence, for the full quarter (3Q24), the ratio is likely to trend lower QoQ. This comes off the peak of 2.63% in 1QFY24. Nevertheless, with macro headwinds, GIL ratio is anticipated to stay elevated over the next 2 quarters (4QFY24 and 1QFY25).

• Delinquency rates (30 days+ past due) are likely to decrease for the 2nd consecutive quarter in 3QFY24. QoQ improvement in delinquency rates is likely to be seen for all loan segments (consumer, SME, commercial and corporate) in 3QFY24. Arising from this, we do not expect negative surprises for provisions in 3QFY24. Hence, we maintain our credit cost assumption of 32bps for FY24F which is within management’s guidance of 30-35bps.

• Recall, management overlays stood at RM208mil as at end- 2QFY24. We expect management overlays for Covid-19 to be converted into provisions based on MEV reviews as well as partly utilised to cover asset quality risk for specific loans ahead.

• 3QFY24 NIM is expected to marginally improve compared to 2QFY24, attributed to lower cost of funds. Despite ongoing deposit campaigns, fixed deposit rates continued to be more rational in 3QFY24 compared to 3QFY23. Promotional FD rates required customers to sign up for either bancassurance products, credit cards or SavePlus deposits. In view that the FDs secured in recent quarters with promotional rates for 3- 6 months tenure are expected to mature only by 2Q25, we expect funding cost to remain elevated in the near term.

• 9MFY24 NIM is on track to meet management’s guidance of 2.45-2.5% for FY24F, a compression of 14bps to 19bps from FY23.

• Opex in 6MFY24 grew 13.9% YoY, largely contributed by higher personnel cost from adjustment of wages for unionised workers under collective agreement in 1QFY24 and higher headcount to support business growth under the ACCELER8 2027 strategy 2H24 is likely to see a lower growth in opex than 1HFY24 due to the non-recurrence of additional hiring expenses despite incurring some IT expenses for enhancing the credit model of consumer loans. For FY24F, we have pencilled in a CI ratio assumption of 46%.

• We maintain our loan growth assumption of 8% for FY24F and expect the expansion in loan book to continue to outpace industry growth of 4-5%. Mortgage loan growth remained robust without sacrificing yields as we understand that residential property loans were priced 5-10bps higher than its peers.

• YTD until 1HFY24, growth in credit RWA of 7.6% was higher than that of financing at 4.9%. This was contributed by stronger growth in commercial and SME financing than consumer loans, which carried higher risk weights.

• 10-year MGS yield fell by 23.6bps to 3.972% as at end-3QFY24, and this was in line with the decline in US treasury yield with the market factoring in expectations of US Fed rate cuts. This is expected to lead to an improvement in ABMB’s investment income in 3QFY24. Nevertheless, over the quarters moving forward, a muted contribution is expected from investment and market-related income as the market has already factored in expectations of potential US interest rate cuts in 4th quarter of 2023. Meanwhile, we expect NOII to be supported by fees from loans, bancassurance, sales of unit trust and other wealth management products such as structured investments going forward.

• Foreign shareholdings of the stock slipped to 21.4% in Dec 23 vs. 21.95% in Sept 23.

• The group is scheduled to release its 3Q24 results on 27 Feb. We expect 3QFY24 net profit to be higher than RM185mil in 2Q24, underpinned by improvement in NIM, robust loan growth, stronger NOII supported by higher treasury and markets income. With the absence of expenses of additional headcounts in 2QFY24, we anticipate a lower opex QoQ in 3QFY24 with stable provisions on the back of improving loan delinquency rates.

• Stock is trading at a fair FY24F P/BV of 0.8x, which is close to its 5-year historical average of 0.9x.

Source: AmInvest Research - 17 Jan 2024