PETALING JAYA: Alliance Bank Malaysia Bhd
is expected to sustain healthy earnings growth and resilient asset quality in the financial year ending March 31, 2027 (FY27), supported by steady loan expansion and dividend visibility.
This is despite mounting deposit competition and volatility in Malaysian Government Securities (MGS) yields.
The bank’s near-term earnings could moderate as one-off recoveries fade, while Treasury income and net interest margins (NIMs) face pressure from a more challenging operating environment.
Hong Leong Investment Bank (HLIB) Research remains cautiously optimistic about Alliance Bank’s earnings trajectory, noting that its underlying fundamentals are still intact despite these headwinds.
“We expect second-quarter FY27 (2Q27) earnings – scheduled on Nov 25 tentatively – to soften quarter-on-quarter, largely reflecting a high base in 1Q27 from significant one-off recoveries,” the brokerage said.
“Nevertheless, the underlying earnings trajectory remains healthy, with first-half FY27 (1H27) earnings still expected to register year-on-year growth, accounting for 50% of our FY27 projection of RM899.3mil,” it added.
Alliance Bank’s dividend payout for 1H27 is also expected to remain broadly in line with historical levels, translating into approximately 9.5 sen per share.
HLIB Research maintained its “buy” rating on the bank with an unchanged target price of RM5.60, based on a price-to-book value ratio of one times for 2027.
The valuation assumes a return on equity of 9.7%, a cost of equity of 10% and long-term growth of 3.5%. The one-times valuation is slightly below the bank’s five-year pre-Covid average of 1.1 times.
The research house said the valuation discount reflected higher required equity returns amid elevated yields, as well as near-term earnings uncertainty arising from MGS volatility and intensifying deposit competition.
“The recent rise in MGS yields could weigh on Treasury income, although the earnings impact should remain manageable given Treasury historically accounts for only 10%–15% of non-interest income,” HLIB Research said.
Alliance Bank’s MGS financial assets at fair value through other comprehensive income (FVOCI) stood at approximately RM7.3bil as of 1H26, with an average duration of four to five years.
Further yield increases could depress FVOCI valuations and the bank’s Common Equity Tier 1 capital ratio.
Meanwhile, deposit competition has intensified earlier than usual, creating a tougher funding environment.
However, management has maintained its FY27 NIM guidance of 2.23% to 2.28%, while the bank’s loan-to-funding ratio of about 88% and liquidity coverage ratio of approximately 130% provide funding flexibility.
HLIB Research noted that a potential overnight policy rate hike in 1H27 could support margins, with Alliance Bank historically recording a NIM improvement of about three basis points following a 25-basis-point rate hike.
Loan growth is expected to remain within management’s FY27 guidance of 7.5% to 10%, supported by a focus on risk-adjusted expansion.
Although early-stage delinquencies in small and medium enterprise loans, mortgages and personal financing warrant monitoring, overall asset quality remains resilient.
