PETALING JAYA: Even with shares of local banks trending up a fair bit, Hong Leong Investment Bank Research (HLIB Research) finds Alliance Bank Malaysia Bhd
’s risk-reward profile to be tilted to the upside.
The banking stock has risen 11% year-to-date, and still may have the legs to go higher, the research house said.
Taking the opportunity to reassess its investment thesis following this, HLIB Research said the bank is likely to post meaningful year-on-year (y-o-y) earnings growth in the next quarter although earrings may come in flattish sequentially.
This will be driven by better total income growth and lower loan loss provisions.
“However, the bank’s historical dividend payout ratio (DPR) of 50% may be reviewed for capital-preservation efforts. That said, we are not particularly deterred if this plays out as Alliance Bank is focusing on current and future growth for just some potential short-term pain,” said the research firm, which maintains a “buy” rating on the stock with a RM4.10 target price (from RM3.95).
This valuation is based on 0.82 times 2025’s price-to-book ratio.
“We estimate even with a lower DPR of 40% (which we reckon is highly unlikely), the stock still offers decent cash dividend yield of over 4.5%,” it said.
The research firm notes that the bank’s net interest margin (NIM) compressed four basis points (bps) sequentially in the third quarter of financial year 2024 (3Q24) due to the year-end competition for fixed deposits (FD), which drove up funding costs.
“However, 4Q24 NIM is seen to be broadly stable as seasonal competition for FDs ease and there is increasing focus to grow its higher yielding loan segments like the small and medium enterprises and commercial categories.
“Overall, management maintains its full-year FY24 NIM contraction guidance of 14 bps to 19 bps versus our forecast of minus 15 bps,” the research house said
Although the 12.9% y-o-y growth in loans may taper into 4Q24, it could likely land at the upper end of the bank’s FY24 guidance of plus 8%-10% and topping a conservative plus 6% estimate, which is still above the industry mean of plus 5%-6%, HLIB Research added.
The research firm said Alliance Bank is also likely to keep its sequential non-interest income results steady, premised on good sustained foreign exchange sales and trade fees, in addition to healthy corporate-banking fees.
Its gross impaired loans ratio could also continue inching lower supported by recoveries and an expanding credit base.
