Alliance Bank Malaysia (ABMB) reports a 1QFY24 net profit of RM150.5m. No dividend was declared as expected, given that the group usually pays biannually.
“YoY, 1QFY24 net interest income inched up thanks to an 8% larger loans books offset by some compression in Net Interest Margin,” said Kenanga Research (Kenanga) in the recent Results Note.
On the other hand, non-interest income declined by 21% no thanks to deepening treasury losses. Due to the drop in total income (-2%) and higher salary adjustments, cost-income ratio rose to 49.3% (+4.9ppts).
Meanwhile, credit cost for the period came in at 28 basis points as several accounts appear vulnerable to the higher interest rate environment, with some notables in the manufacturing sector. All in, 1QFY24 net profit came in at RM150.5m. Broadly, the group believes that most challenges are well managed but opines that NIMs may see prolonged hurdles.
“The group seeks to narrow its NIM guidance slightly to 2.45%-2.50%. While they believe contraction is closing to an end from aggressive deposits competition previously, a sustained trajectory may require some time,” said the research house.
A loans growth target of 8%-10% is maintained as the group believes it continues to possess a strong foothold in its commercial
and SME segments. It opines that a higher exposure here will be beneficial to overall profitability as it generally garners higher return
as opposed to retail accounts.
Legacy Alliance ONE Accounts appear to see repayment concerns resurfacing following the stress from higher interest rates. The group believes that further pressures from this group is currently well contained but notes that accounts which had not received assistance in the past are also showing signs of delinquency.
“That said, the group believes a net credit cost exposure of 30 basis points-35 basis points as guided would be sufficient to manage asset quality risks for the year with the group progressively writing back on its pandemic-related and general overlays. As of this report, the group maintains an outstanding overlay of RM256m,” said Kenanga.
While the group’s gross impaired loans reading seems to be peaking at 2.63%, a guidance of 3% for the full-year was provided.
However, Kenanga suspects these levels are unlikely if the group continues with the progressive writing back of its remaining overlays.
In spite of the lower loans growth outlook, the stock’s fundamentals are still comparatively better than its larger cap peers in terms of return on equity and dividend yields.
Risks to Kenanga’s call include higher-than-expected margin squeeze, lower-than-expected loans growth, worse-than-expected deterioration in asset quality, slowdown in capital market activities, unfavourable currency fluctuations, and changes to OPR.
