KUALA LUMPUR (March 24): Alliance Bank Malaysia Bhd’s (KL:ABMB) stock fell sharply on Monday in active trade amid concerns of dilution after the lender announced a proposed RM600 million rights issue.

The stock fell more than 8% within the first 30 minutes of trading. At 9.30am on Monday, Alliance Bank was trading at RM4.69, down about 8%. At the closing bell, the counter extended its losses to settle at an eight-month low of RM4.66, down 8.45% — its steepest decline in a single day since March 2020. More than 15 million shares changed hands — its highest trading volume in the past five years. At the last price, the company had a market capitalisation of RM7.21 billion on Bursa Malaysia.

While the proposal caught the market by surprise, analysts said the rights issue would strengthen its balance sheet following rapid loan growth that pushed its capital position down to one of the lowest among peers.

“What is positive, in our view, is that the right issue will shore up the group’s capital position,” said Maybank Investment Bank in a note. “The improved capital position will also support the bank’s growth strategies ahead.”

Monday’s decline wiped out all of its gain since the start of 2025. A large majority of analysts were also cautious on the stock even before the rights issue was announced after Alliance Bank surged more than 50% in 2024.

“Hold” and “sell” calls outnumbered “buy” recommendation by 12 to four, according to analysts tracked by Bloomberg. Its average 12-month target price has also fallen to RM5.16 from RM5.29 last week.

Phillip Capital estimated that the projected earnings per share could decline as much as 7% due to the increase in share base, but believes the potential boost to Alliance Bank's capital position would trump dilution concerns.

Alliance Bank’s common equity Tier 1 capital ratio — a measure of a bank’s capital strength based on the highest quality of regulatory capital — will rise to “a more comfortable” 13.5% from 12.4% currently if the rights issue goes through.

“This will support Alliance Bank's target to maintain its double-digit lending growth,” the house said.

Both Maybank and Phillip Capital kept their ‘hold’ call on the stock for now.

For CIMB Securities, which kept the stock on a ‘buy’ call, the rights issue will only lead to a minimal reduction of 0.2 percentage point in return on equity if loan growth picks up to 9.9% from 7.9% and dividend payout rises to 45.9% from 38.6%.

“We are positive on the rights issue as we believe the company is on the right track in scaling up its operations,” the house added.

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Alliance Bank proposes renounceable rights issue of shares to raise RM600m