• Maintain BUY, new MYR4.30 TP from MYR4, 20% upside and c.7% FY25F (Mar) yield. Alliance Bank Malaysia’s 9MFY24 results are in line with expectations, with the key positives being robust loan growth and a continued drop in NPL. We reiterate our BUY call, premised on its sustained above-industry loans growth prospects and attractive valuation. Our higher TP reflects ABMB’s improved asset quality indicators.

• Results review. ABMB recorded a sequentially softer 3QFY24 net profit of MYR176.9m (-5% QoQ, flat YoY). Non-II (-33% QoQ, +29% YoY) was the main drag QoQ, on the absence of one-off bancassurance fees, on top of net trading losses. Core fees, meanwhile, were decent, driven by wealth management and loan-related fees. The 3QFY24 net profit brings the YTD total to MYR512.7m (-6% YoY), in line with our and Street full-year projections. Most line items remained within or better than its FY24 guidance save CIR, which was marginally ahead of management’s <48% target (9M23: 44%).

• A surge in loan growth. Gross loans expanded by 13% YoY in 3QFY24 (+4% QoQ), ahead of the group’s 8-10% YoY target. Growth was broad-based across all customer segments, but we understand that there was an unspecified large corporate drawdown from the real estate sector during the quarter. Management sees growth decelerating in 4QFY24 due to the non- recurrence of lumpy drawdowns, but the broad-based momentum should allow the bank to land comfortably within its guided range of 8-10% come the financial year-end.

• Continuous improvement in NPL. ABMB’s NPL fell sequentially for the second consecutive quarter, shedding 3% QoQ in 3QFY24 (YoY: +36%). Again, the improvement in NPL was broad-based across all customer segments, with a notably large decrease coming from the Alliance One Accounts (-8% QoQ, +6% YoY), owing to better collections following a shift in collection strategy. Looking ahead, the group sees pressure on consumer debt servicing capabilities potentially affecting the consumer portfolio. As such, it is maintaining its credit cost guidance of 30-35bps (9MFY24: 26bps). However, the group remains fairly well protected, with 70% of the total NPL balance secured, and the remainder fully provisioned for.

• Other briefing highlights. Management expects the CIR to trend downwards, as investments related to its ACCELER8 2027 strategy begin to taper off and translate into stronger income. 4QFY24 ROE levers include stronger trading income, robust loan growth and opex deceleration, to offset the potentially higher credit costs.

• No changes to forecasts as results are in line. However, we upgrade our TP to MYR4.30 from MYR4 to account for ABMB’s improving asset quality metrics, ie NPL and LLC. Our TP includes a 6% ESG premium.

Source: RHB Research - 28 Feb 2024