KUALA LUMPUR (Nov 11): Alliance Bank Malaysia Bhd (KL:ABMB), whose shares hit an all-time high on Monday, is expected to see decent results for the second quarter ended Sept 30, 2024 (2QFY2025) on the back of robust loan growth and stable net interest margins (NIMs), said Maybank Investment Bank.
Shares of Alliance Bank rose as much as 43 sen or 9.56% to an all-time high of RM4.93 on Monday.
At the noon break, the counter had pared its gains to RM4.81 — still up 31 sen or 6.89% — valuing the bank at RM6.97 billion. Year to date, the counter had risen by over 42%.
"Credit cost, however, is likely to remain elevated, as there is still some pressure on asset quality," the research firm said in a note on Monday, upgrading the counter to 'buy' from 'hold', with a target price (TP) of RM5.30. ABMB is due to announce its results on Nov 28.
Maybank IB maintained its FY2025 net profit forecast, but raised its projections by 2% for FY2026 and 1% for FY2027 on lower credit cost assumptions.
The house raised its TP to RM5.30 from RM4.60, on a higher calendar year 2025 (CY2025) price-to-book value of one times (0.9 times previously), supported by a CY2025 return on equity of 10%.
Maybank IB noted that Alliance Bank's loan growth continued to be robust, with the management targeting loan growth of 8% to 10% for FY2025.
"Correspondingly, we have raised our FY2025 loan growth forecast to 9% from 8%. NIMs, meanwhile, are likely to have been stable quarter-on-quarter in 3QCY2024, though we expect renewed pressure in 4QCY2024 due to seasonal deposit competition."
The research firm's FY2025 NIM forecast of 2.43% trends within the management’s guidance of 2.4% to 2.45%.
Meanwhile, Maybank IB said there is still some pressure on asset quality, particularly from Alliance ONE Accounts, and as such, it maintained an elevated credit cost assumption of 35 basis points for FY2025 (32 bps in 1QFY2025).
"Nevertheless, with RM121 million worth of management overlays, we have lowered our FY2026 credit cost assumption to 30 bps from 33 bbps," it added.
Potential acquisition of stake by DBS?
Meanwhile, the potential acquisition of a stake in Alliance Bank by Singapore’s largest lender DBS Group Holdings Ltd could strengthen Alliance Bank’s digital banking services and wealth management offerings, said RHB Research.
This follows a Reuters report over the weekend that DBS is considering the purchase of Temasek's 29.1% stake in Alliance Bank as part of its expansion into Malaysia, a transaction that would require approval from Bank Negara Malaysia.
Other options include acquiring Kuwait Finance House's retail banking assets in Malaysia.
Temasek is a major shareholder in both Alliance Bank and DBS. Vertical Theme is Alliance Bank’s largest shareholder with a 29.1% stake. Vertical Theme is primarily owned by Langkah Bahagia (51%) and Duxton Investments (49%), with the latter being owned by Temasek.
“We think such a deal makes sense, as it helps Singapore’s largest bank fill a gap in its Asean presence. Concurrently, Alliance Bank could benefit from DBS’ reach, clientele and banking expertise,” said RHB in a note on Monday.
Meanwhile, in a separate note, TA Securities said DBS did not confirm any immediate plans during a recent briefing.
"Nevertheless, the management reiterated their long-standing interest in the Malaysian market, while highlighting past challenges arising from government-to-government restrictions.
"The management noted that should these constraints lessen, they would be willing to consider potential opportunities to establish a presence in the country," it said. TA Securities has an 'overweight' call on the banking sector and 'buy' on Alliance Bank, with a TP of RM5.
Further, Alliance Bank could benefit from the onboarding of DBS’ Greater China clients, adding more direct exposure to foreign direct investment in Malaysia, said RHB.
“We understand Temasek/Vertical Theme currently has two non-executive representatives on Alliance Bank’s board of directors. Hence, a stake transfer to a more active shareholder — especially one with a regionally established banking background — could be a positive.
“Synergies look rather straightforward and could propel Alliance Bank towards becoming a bigger player in the domestic business banking space. We think investors will react positively to this development,” it added.
RHB, which maintained its ‘buy’ call on Alliance Bank, raised its TP to RM5.50 from RM5.10 previously.