Alliance Bank Malaysia Bhd is projected to record a lower net profit quarter-on-quarter (QoQ) and year-on-year (YoY) for third quarter of financial year ended in December 2023 (3QFY24), according to RHB Investment Bank (RHB IB).
“The deviations is expected to come from non interest income (non-II), credit costs and operating expenditure (opex).
“While we have no formal 3QFY24 forecasts, we expect Alliance’s net profit to soften QoQ and YoY – the former from softer non-II and
potentially higher credit costs, and the latter due to higher opex.
“On the other hand, positives should come from above-industry loan growth and a stable non-performing loan (NPL). We still like the company for its bright loan growth prospects, decent yields and undemanding valuation,” it said in its Malaysia Results Preview today (Feb 20).
RHB IB said that its full-year net profit forecast of RM668 million is in line with the consensus projection while no interim dividend announcements are expected for 3QFY24, scheduled to be released on Feb 27.
The research house anticipated net interest income (NII) to hold steady but for net interest margin (NIM)
“3QFY24 should bring decent loan growth that is within management’s 8% to 10% YoY target. This increase would be mainly driven by
households still, with a pick-up among corporate customers from drawdowns for public infrastructure projects.
“However, we expect NIM to narrow QoQ due to seasonal competition for deposits, although management assures that it should meet the 2.45 to 2.50% NIM target for 9MFY24,” it said.
Meanwhile, it expected that Alliance’s non-II is sequentially weaker as it booked a one-off fee of RM16 million from the renewal of its bancassurance contract with Manulife Malaysia in 2QFY24.
“As such, we expect non-II to moderate to 15% of total income in 3Q compare to 17% in 2Q: 17%, with core fees remaining stable. YoY, we expect stronger non-II from both stronger fee, particularly from the wealth management business and trading income.”
Additionally, RHB IB said operating and credit costs to remain within guidance.
“In a recent meeting with management, we were guided for cost-to-income ratio (CIR) to still remain elevated, near the 48% target level. This implies flat opex QoQ, and higher opex YoY.
“The YoY increase is attributable to expenses related to its ACCELER8 2027 strategic plan – namely the opening of new branches, talent acquisition, and enhancement of IT capabilities.
“On asset quality, loan loss coverage (LLC), excluding regulatory reserves) below 100% could prompt management to boost its pre-emptive
provisions, but credit costs should still land within the 30 to 35 basis points (bps) guided range,” it added.
Despite the anticipated lower performance in some areas, the research house kept its BUY call and RM4 target price (TP), 13% upside with 7% FY25F (March) yield.
“We will be on the lookout for guidance on its NIM trajectory, and how the bank attempts to achieve a sequential NIM rebound in 4Q, considering the period of competiton for deposits in January to February.
“We would also like to gain more clarity on the bank’s fee income franchise, particularly on the corporate and capital markets business. Lastly, asset quality updates – specifically on NPL formation among SME and corporate customers – would also be helpful.”
