The impact is estimated to be a larger +5.1% on Alliance Bank, given that it has the highest proportion of variable rate loans and current account/savings account in the industry.
KUALA LUMPUR: Maybank Investment Bank Research has raised the target price of Alliance Bank from RM4.70 to RM5 on a higher price-to-book (PVB) peg of 1.3 times from 1.2 times previously.
It said on Monday the bank is positioning the group for medium- to long-term growth, which its management targets to be 10% per annum on average over the next two to three years.
“Positively, this should also sustain return on equity (ROEs) above 10% for the group over the medium term,” it said.
Maybank Research pointed out that for the FY ended March 31, 2018, it was a year of consolidation for Alliance Bank, as the group invested/will invest close to RM90mil on (i) new product development such as Alliance One Account (AOA) and Alliance@Work, (ii) streamlining its work force/branch network, and (iii) strengthening its SME presence.
“What is positive is that these initiatives should lead to improved fundamentals for the group over the medium term, through faster loan growth, better net interest margins (NIMs) and improved cost efficiencies,” it said.
The research house said it made no change to its earnings forecasts and expected core earnings to be flat in FY18. It had yet to account for restructuring costs of about RM36mil, which could lead to a 6% on-year contraction in reported net profit.
“With the above initiatives gradually contributing, management guides for a net profit of RM530mil for FY19 and our forecast of RM556mil is about 5% above this.
“It also targets a two-year net profit compounded annual growth rate (CAGR) of 10% thereafter and hopes to hit a net profit of RM700mil by FY22. Our FY19E ROE of 10.1% is about in line with management’s target.
“With a CET1 ratio of 13.6% end-Dec 2017 and a total capital ratio of 18.7%, Alliance Bank is well-capitalised.
“Management guides for a 50bps impact to capital ratios on Day 1 post MFRS9 and more importantly, guidance is that credit cost is likely to remain below 30bps moving forward (28bps in 3QFY18 ex a one-off writeback), which is of comfort,” said Maybank Research.
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