Review

• Alliance Bank (ABMB) reported a stronger set of FY24 results. FY24 net profit increased by 1.9% YoY to RM690.5mn, anchored by a combination of higher operating income, lower operating expenses, and an 11.5% YoY decline in net credit cost. ABMB’s results came within expectations, with the full-year net profit at 103% of ours and the consensus forecast.

• Combined with Islamic net financing income, total net interest income (NII) climbed 4.1% YoY due to higher loan volume and better asset yields. Despite that, the net interest margins (NIM) were compressed by 16bps YoY to 2.48% (FY23: 2.64%) due to the higher cost of funds. Sequentially, NIM continued to face some pressure, narrowing by another 4 bps to 2.45%

• Loan growth accelerated at a stronger pace of 13.6% YoY (FY23: +6.2% YoY) to RM55.7bn, exceeding management’s target of 8-10% for FY24. The yearly improvement was led by the SME segment (+15.8% YoY), which received a boost from term loans, Commercial Banking (+13.8% YoY) and Corporates (+13.0% YoY). Consumer Banking loans remained on a positive growth trajectory (+12.5% YoY), supported by Personal Financing (+21.7% YoY) and Mortgages (+8.4% YoY). Total deposits rose 12.9% YoY, underpinned by FDs (+19.4% YoY). Meanwhile, CASA deposits, which rebounded in the 3Q, grew at a healthy 12.1% YoY. While ABMB’s CASA ratio has narrowed slightly to 41.6%, it remains one of the highest among banking peers.

• Including Islamic Financing, non-interest income (non-NII) grew by 12.4% YoY, thanks to higher client base fee income, where Wealth Management broadened by 31% YoY, followed by FX sales and trade fees (+21.9% YoY) and Banking services fees (+10.9% YoY). However, the increase in non-NII was muted by lower treasury and investment income (- RM20.6mn YoY) and lower brokerage income (-RM6.2mn).

• Net credit cost eased to RM134.9mn in FY24 vs RM152.3mn a year ago as the normalisation of ECL BAU was offset by the reversal of ECL overlays. The net credit cost stood at 25.8 bps, coming in better than management’s FY24 guidance of 30-35 bps. Meanwhile, ABMB’s gross impaired loans ratio continued to improve sequentially to 2.11% from 2.33% in 3QFY24. Compared to a year ago, the GIL ratio improved by 40 bps due to improvements in the Commercial & Corporate (-40 bps YoY) and the Consumer segment (-70 bps YoY). However, there was a 20 bps increase in the GIL ratio for SMEs (+20 bps YoY). Elsewhere, the loan loss coverage ratio was at 113.8% (FY23: 123.7%).

• Elsewhere, total overhead expenses increased by 10.5% YoY, mainly attributed to higher personnel expenses from collective agreement salary adjustments and higher headcount. ABMB also reported higher IT expenses related to strategic initiatives and marketing expenses for the Consumer business and branding refresh. On the back of negative JAWs, ABMB’s FY24 cost-to-income ratio climbed to 48.2% (FY23: 45.9%) – slightly above the guidance of keeping the CTI ratio <48%.

• Lastly, the group’s CET1 Capital Ratio and total capital ratio stood above regulatory requirements at 12.5% and 16.8%, respectively. Meanwhile, ABMB also reported a healthy liquidity position as the liquidity coverage and net stable funding ratios stood at 156.8% and 113.7%, respectively.

Impact

• Incorporating FY24 results, we adjusted the FY25/26 net profit forecast to RM733.8/780.4mn from RM712.5/771.5mn. We project FY27 net profit to grow by 7.3% YoY to RM837.0mn.

Outlook

• ABMB's business momentum continued to demonstrate robust growth across various segments, achieving all FY24 targets for its ACCELER8 strategy pillars. This includes regaining market share across segments and achieving the highest ever new-to-bank (NTB) customer acquisition.

• For FY25, ambitions will continue to focus on building momentum across all business lines, defending market share, and boosting fee and treasury income. Additional priorities include strengthening relationships with target customer segments and driving growth in the Islamic franchise.

• Despite this, ABMB may see more tapered loan growth given its cautiously optimistic outlook on the broader environment. Competition is expected to keep the NIM within a lower range of 2.40-2.45% (FY24: 2.48%). Asset quality might face some stress, with the net credit cost projected to rise to between 30-35 bps from 25.8 bps in FY24. Nonetheless, management is confident in maintaining a ROE above 10% (FY24: 10.2%), supported by efforts to manage the CTI ratio at around 48% (FY24: 48.2%).

Valuation

• We adjusted ABMB’s TP to RM4.30 from RM3.90 on the back of the upward revision to our FY25 forecasts. Our valuation is based on an implied PBV of c. 0.93x based on the Gordon Growth Model. Buy reiterated on ABMB.

Source: TA Research - 31 May 2024