PETALING JAYA: Analysts have downgraded Alliance Bank Malaysia Bhd
(ABMB) to “neutral” from “buy” following the completion of the banking group’s rights issue exercise.
RHB Research said although the group is on stronger footing to continue its growth momentum now, the expanded capital base alongside July’s overnight policy rate (OPR) cut could weigh on medium-term return on equity (ROE), potentially putting the lender’s target of 11% ROE for its financial year ending March 31, 2027 (FY27), at risk.
“Given the decline in the share price post-rights issue announcement, we think the current valuation already reflects these lower ROE expectations,” the research house said.
RHB Research said ABMB remains committed to its FY26 loan growth target of between 8% and 10% across all customer segments.
“Its recently completed rights issue is also supportive of similar growth rates for FY27 and FY28. At present, the bank sees little room to exceed the 10% upper threshold, as it is mindful of operational and cash flow challenges that customers may be facing, particularly those exposed to US tariffs, raw-material price volatility and potential supply chain disruptions,” it added.
RHB Research said ABMB’s strong deposit growth in 1Q26, up 12% year on year versus loan growth of 10%, means the group is operating on excess liquidity.
To improve efficiency, management is open to raising its loans-to-funds ratio to as high as 90% from the current 87% by releasing high-cost corporate and wholesale deposits, it said.
“Elsewhere, the group had also cut its deposit rates by about 10 basis points prior to July’s rate cut, which should help to mitigate some of the net interest margin (NIM) compression from the overnight policy rate cut.
“ABMB’s FY26 NIM guidance of 2.37% to 2.43% implies a five to 11 basis point year-on-year compression, which looks reasonable. Management’s conviction remains – it is comfortable with taking a margin hit as long as non-interest income continues to grow, meaning volume growth trumps margin squeeze.”
RHB Research said it is projecting a FY25 to FY28 earnings compounded annual growth rate (CAGR) of 5.4% for ABMB, premised on above-industry average loans growth of 8% to 10% with stable NIM past FY26, non-interest income CAGR of 6%, particularly from client-based income and stable credit costs.
“Our forecasts are 2% to 3% below consensus expectations. We also assume a 40% dividend payout ratio, which generates yields of 4% to 5%.
“Our Gordon Growth Model-derived target price is cut to RM4.80 from RM5.90 following the rights issue exercise, and includes an unchanged 6% environmental, social and governance premium,” said RHB Research.
It sees downside risk to the bank’s cost income ratio (45%) and ROE (11%) targets, from elevated IT, establishment and staff costs and a larger capital base.
The lender’s other targets of 8% to 10% loan growth and 40% to 50% dividend payout should remain intact, the research house added.
