Alliance Bank to thrive in SME loan space

“Going forward, the bank will invest in scaling up its SME business with an aim to be among the top four banks in SME market share in Malaysia,” TA Research added.

PETALING JAYA: Alliance Bank Malaysia Bhd’s (ABMB) proposed sale of its stockbroking business to Phillip Futures Sdn Bhd will help to raise funds and accelerate its growth strategies for its core businesses.

The planned disposal would allow the group to reprioritise its businesses to accelerate the growth of its consumer, the small and medium enterprises (SME) and Islamic banking businesses going forward.

“We are positive on the deal as the funds raised would assist the group with its growth strategies outlined, particularly within the SME space.

“Additionally, we believe the group’s presence in the stockbroking space is rather inconsequential relative to its peers, hence it could be worth a greater while to focus on higher-return business streams,” Kenanga Research said.

It said that the implied valuation of the deal at one time to the net asset value consideration is fair.

“In 2012, Kenanga Investment Bank sought to purchase ECM Libra Financial Group Bhd’s investment banking and stockbroking businesses for RM875mil at an implied 1.27 times price to book value.

“Considering the passiveness of stockbroking at present times, in addition to the absence of its investment bank in the deal, the discount seems justified,” Kenanga Research said.

“On the flipside, the one time valuation is still better than our applied multiple to the group’s stock value at 0.6 time,” it added.

Kenanga had kept its “market perform” rating on the stock with an unchanged target price of RM2.65 pursuant to the deal.

It said its rating is based on an unchanged Gordon growth model (GGM)-derived price to book value of 0.60 time on its 2022 book value per share of RM4.42 which is one standard deviation below the mean valuation.

“We were previously cautious on the stock due to its low risk-to-reward but with the resumption of dividends to pre-Covid-19 levels, the stock is a considerable proposition in our books,” it said.

Meanwhile, TA Research said the proposed disposal by ABMB is expected to free up around RM200mil in capital and would in turn boost ABMB’s common equity tier one by 0.6%.

It noted that the disposal did not come as a surprise since its management had in the past noted the banking group’s strategic plan to reprioritise its core banking business.

“Management noted that the excess capital from the sale of the stockbroking business will be redeployed to accelerate growth in its consumer, SME and Islamic banking businesses.

“This is in line with ABMB’s broader vision to be the preferred bank of the business owners,” TA Research said.

“Going forward, the bank will invest in scaling up its SME business with an aim to be among the top four banks in SME market share in Malaysia,” it added.

TA said it made no change to its earnings estimates for ABMB and had maintained its target price at RM3.20 with a “buy” recommendation on the stock.

Its valuation is based on an implied price to book value of about 0.78 time based on the GGM.