• Maintain BUY and MYR4.00 TP, 13% upside with c.7% FY25F (Mar) yield. Alliance Bank Malaysia is scheduled to release its 3QFY24 results on 27 Feb. We think the bank could book slightly softer net profit QoQ and YoY, with deviations coming from non-II, credit costs and opex. On the other hand, positives should come from above-industry loan growth and a stable NPL. We still like the company for its bright loan growth prospects, decent yields and undemanding valuation.

• NII to hold steady. 3QFY24 should bring decent loan growth that is within management’s 8-10% YoY target. This increase would be mainly driven by households still, with a pick-up among corporate customers from drawdowns for public infrastructure projects. However, we expect NIM to narrow QoQ due to seasonal competition for deposits, although management assures that it should meet the 2.45-2.50% NIM target for 9MFY24 (1HFY24: 2.48%).

• Non-II sequentially weaker. In 2QFY24, ABMB booked a one-off fee of c.MYR16m from the renewal of its bancassurance contract with Manulife Malaysia. As such, we expect non-II to moderate to c.15% of total income in 3Q (2Q: 17%), with core fees remaining stable. YoY, we expect stronger non- II from both stronger fee (particularly from the wealth management business) and trading income.

• Operating and credit costs to remain within guidance. In a recent meeting with management, we were guided for CIR to still remain elevated, near the 48% target level. This implies flat opex QoQ, and higher opex YoY. The YoY increase is attributable to expenses related to its ACCELER8 2027 strategic plan – namely the opening of new branches, talent acquisition, and enhancement of IT capabilities. On asset quality, LLC (excluding regulatory reserves) below 100% could prompt management to boost its pre-emptive provisions, but credit costs should still land within the 30-35bps guided range (1HFY24: 30bps).

• Bottomline. While we have no formal 3QFY24 forecasts, we expect ABMB’s net profit to soften QoQ and YoY – the former from softer non-II and potentially higher credit costs, and the latter due to higher opex. Our full- year net profit forecast of MYR668m is in line with the consensus projection. No interim dividend announcements are expected.

• What are we watching out for? We will be on the lookout for guidance on its NIM trajectory, and how the bank attempts to achieve a sequential NIM rebound in 4Q, considering the period of compeititon for deposits in January- February. We would also like to gain more clarity on the bank’s fee income franchise, particularly on the corporate and capital markets business. Lastly, asset quality updates – specifically on NPL formation among SME and corporate customers – would also be helpful.

Source: RHB Research - 20 Feb 2024