RHB Research has maintained “BUY” call in Alliance Bank with new Target Price (TP) of MYR4.00, with 26% upside and c.6% FY23F (Mar) yield. The overall tone during the research house’s meeting with management was positive, with an emphasis on the stability of demand for financing, and better-than-expected collections. While external headwinds, namely inflation, still linger, existing overlays built-up during the pandemic should provide some breathing room for Alliance Bank Malaysia. Premised on its attractive valuations and high yield, hence the research house has maintained their “BUY” call on the stock.
Business activities are stable. Ground checks carried out by ABMB point towards stable business operations and credit demand. In particular, demand for working capital loans remains strong, especially from the small-and-medium enterprises (SMEs) and commercial customers that are building on sustained post-lockdown business momentum. As at end-Mar 2022, working capital loans formed 23.3% of its loans portfolio, which is the second biggest item after residential mortgages (31.6%).
Asset quality remains robust. Collections from customers, including those who received loan repayment assistance, exceeded expectations despite the expiry of the loan relief programmes. This, coupled with an LLC ratio of 136%, leads us to believe that ABMB may gradually write-back some of its built-up pre-emptive provisions (end-Mar 2022: MYR450m) over the next few quarters. However, management stressed that inflation remains a concern to be cognisant of. In view of this and further policy rate hikes, ABMB will offer loan restructuring packages to certain customers, if necessary. While this will preserve GIL ratio at the sub-2% level, restructuring a great amount of loans could adversely impact NII and NIMs,
and provide downside risk to management’s 11% ROE target for FY23F.
Deposit competition heating up. Guidance from management indicates that competition between banks for deposits is intensifying, as banks are trying to lock down longer-term funding in anticipation of further overnight policy rate (OPR) hikes. It is believed ABMB’s SavePlus deposit account places the bank in an advantageous position, as the account offers
customers generous returns (20bps lower than board rates for term deposits), without the need to sacrifice liquidity in hand. As at end-Mar 2022, ABMB’s CASA ratio of 48.9% towered above the banking industry average of 42.1%, but the research house keeps a cautious eye on the potential impact to NIMs caused by aggressive deposit competition.
The research house is keeping its forecasts unchanged for now, but refresh our GGM assumptions to better reflect current market conditions. Its TP is based on a fair value P/BV of 0.91x, which is over 0.5SD below ABMB’s long-term mean of 1.2x, and includes a 2% ESG premium as per in-house proprietary methodology. After a c.15% share price drop in the last three months, the stock is trading at an undemanding c.0.8x 12-month forward P/BV, and coupled with a strong 6.4% yield, makes for an attractive BUY.
