In MIDF Research report on Alliance Bank Malaysia Berhad (ABMB), the bank has just unveiled its ACCELER8 2027 strategy. Several strategic thrusts are similar to that of other banks’ multi-year strategies:
*Tech-based efficiency: To offer quicker, more agile execution in process; A higher level of customer service; More personalised products and services to target select customer groups.
*Targeting high potential business groups earlier on: HENRY (High Earners, Not Rich Yet); Business customers throughout life cycle, naturally complementing their affinity towards SME customers (From small firm growing into big firm and then towards initial public offering or IPO).
*Acceleration of Islamic business via more specialised propositions: green services, Halal in One (ABMB’s complete halal business support programme).
*SME strategy maintained and built on. ABMB will strive to continue the success of its past SME strategic priorities (FY22 SME loans: +11%yoy). ACCELER8 will see more focus on targeted ecosystems (e.g. Green Technology), as well as following through with the aforementioned “business life cycle” approach.
*Regional champion focus. With already firm rooting in the central region, ABMB will be shifting its focus to other fast-growing economic corridors.
Financial targets. Apart from loan growth target, most are very achievable and close to present values.
- Loan growth: 8-10%yoy (Last quarter: +6.7%yoy)
- ROE: >11% (Currently: 10-11% range)
- CIR: ~45% (Currently: 42-43% range)
- Dividend ratio maintained at 50%
Earnings revised. MIDF has increased its forecast earnings for financial year 2024-2025 (FY24/25) projections by +1.5%/+0.7% respectively, to incorporate the possibility of two additional +25bps OPR hikes in 1HCY23. The research house is fairly certain of one +25bps in January, but incorporate the possibility of another one after that.
Key risks identified for earnings include inability to control OPEX; further deteriorations in asset quality; and higher-than-expected NCC.
Valuation and recommendation. While still in the early stages, ABMB seems well on track to achieve its ACCLER8 initiatives. Apart from loan growth, targets are reasonable and do not stray too far from pre-existing plans. According to MIDF, the bank’s Management has done an exceptional job in furthering strategic thrusts over the last couple of years while navigating through the Covid-19 crisis.
MIDF remains optimistic about ABMB’s long-term prospects for several reasons like high FY24F dividend yield of 6.4%; High possible overlay writebacks (FY24: 42% of CNP, having written off problematic RA loans); CIR on the stronger side; High sensitivity to OPR hikes relative to earnings base, given that there might be two further OPR hikes in 1HCY23 (Per hike:
+4bps; +1.5% FY24 CNP).
Thus, MIDF Research has reiterated its BUY recommendation with a slightly higher target price (TP) of RM4.36, as it is pegged to its FY24 BVPS to an unchanged P/BV of 0.95x.
