Alliance Bank Malaysia (ABMB) reported a sequentially steadier 4QFY24 net profit of RM177.7m (+36.6% YoY, +0.5% QoQ), contributing to a cumulative FY24 net profit of RM690.5m (+1.9% YoY) which is the Group’s highest on record. Coming in slightly ahead of our full-year estimates at107% though within consensus at103%, we tweak FY25/FY26 estimates slightly higher by 3% on average to account for slight changes in margin and non-interest income growth assumptions. Business growth momentum continues to be encouraging, with robust expansion in its loans book and an improved funding cost contributing to the steadier performance. We continue to be encouraged by overall improvements seen operationally and retain our Trading Buy call with a higher dividend-based target price of RM4.20 on account of the earnings adjustment and rolling-over of our base valuation year. A second interim dividend of 11.5sen was declared, bringing total dividend for the year to 22.3sen (payout ratio: 50%)

• FY24 income. Net interest income grew by 4.1% YoY (+RM67.5m) as benefits from the robust expansion in its loans book (+RM145.1m) and benefits of the past policy rate hikes (+RM13.9m) sufficiently negated effects of deposit rate competition and modification losses (-RM91.5m).Non-interest income growth was a healthier +12.4% YoY(+RM39.3m), contributed predominantlybywealth management income (+31.0% YoY to RM32.8m) and FX sales and trading fees (+15.2% YoY to RM21.9m).

• Net interest margin (NIM) slipped a further 4bps QoQ to 2.45% (3QFY24: 2.49%) in part due higher funding costs – slippage in CASA ratio to 41.5% (3QFY24: 45.1%) owing to competition from digital banks, and stronger growth in fixed despots (+19.4% YoY). For the year, NIMs fell 16bps (FY23: 2.64%). Management anticipates further compressions aheadthough marginal,guiding for NIMs to average between 2.40% and 2.45% for FY25 (FY24: 2.48%).

• Loans growth of +13.6% YoY, while robust, remains relatively broad-based – consumer (+12.5% YoY to RM27.3bn), SME (+15.8% YoY to RM14.7bn), commercial (+13.8% YoY to RM7.5bn) and corporate (+13.0% YoY to RM6.3bn). Guidance for FY25 is a more moderate 8% – 10% growth.

• Asset quality improvements continue to be reflected in the gradual decline in quantum of gross impaired loans, albeit partly aided by write-offs (Figure 5). Nonetheless, 67% of gross impaired loans remain secured, with the balance fully provided for. Net credit cost for the year is 25.8bps (FY23: 31.9bps), comprising normalized credit charge of 60.6bps offset by overlay net writebacks of 34.8bps.Loan loss coverage is at 113.8% (FY23: 123.7%).

Source: PublicInvest Research - 31 May 2024