• Results was in line with expectation; announced lower 9.5sen DPS

• Rising trend of watchlist accounts, but likely to be temporary

• Maintain HOLD rating and GGM-derived TP of RM4.70

Results in line, lower 9.5sen dividend announced

2QFY25 core PATAMI of RM190m (+8% QoQ, +3% YoY) brings 6MFY25 core PATAMI to RM367m (+9% YoY), representing 50% of our and consensus full-year estimates. The key highlight was a strong growth in 6MFY25 PIOP, driven by higher loan volume (+15% YoY), which boosted net interest income by 16% YoY, although NIM declined slightly by 1bps to 2.47%. 6MFY25 non-interest income grew by 11% YoY, with growth across all segments negating a decline in banking services fees. The reported ROE stands at 10.3%. An interim dividend of 9.5sen (2QFY24: 10.85sen) was declared in 2QFY25, implying a payout ratio of 40%, in line with our estimates and at the lower end of the 40–50% guidance. The CET1 ratio remains relatively low at 12.4% compared to its peers.

Early indication of potential asset quality stresses

We remain cautious about the potential asset quality concerns despite the GIL ratio improved by 15bps QoQ to 2.02% in 2QFY25. Early signs of delinquencies (>30 days past due) have increased across most segments, including SME: +10bps, commercial & corporate: +30bps, and certain consumer (AllianceONE account: +10bps, personal financing: +50bps). That said, management sees this trend as temporary. The FY25E credit cost guidance remains at 30–35bps, despite the 6MFY25 credit cost of 24.5bps which includes pre-emptive provisioning, and expectations of a lower credit cost in 2HFY25.

Maintain HOLD and GGM-derived RM4.70 TP

We maintain our forecasts, HOLD rating, and GGM-derived target price of RM4.70. Our key assumptions include an FY25–27E ROE of 10%, LTG of 3.5%, and COE of 10.7%. We recognise the growth potential of smaller banks such as Alliance, which are expanding their market share through strong loan growth, but we view the current risk-reward profile as balanced. Potential challenges in the SME space, particularly related to NIM and asset quality, along with the likelihood of reduced dividend payout due to the current CET1 ratio, suggest that a discount is warranted. Upside/downside risks include higher/lower NPLs, weaker/stronger loan growth, and NIM.

Source: Philip Capital Research - 29 Nov 2024