KUALA LUMPUR (March 26): At least two research houses upgraded their call on Alliance Bank Malaysia Bhd (KL:ABMB), after its share price dropped to a more attractive valuation, amid a proposed rights issue aimed at supporting the banking group's growth.

In a note on Wednesday, MIDF Research upgraded the counter from 'neutral' to a 'buy' call, with an unchanged target price (TP) of RM5.02, which translates into a price-to-book ratio of 0.94 times for the financial year ending March 31, 2026 (FY2026). 

"We upgraded our recommendation following the recent selldown (apart from the dilutive impact of the right issue, positive sentiment from a potential partnership with DBS has subsided).

"Note that our forecasts do not incorporate dilutive effects of the proposed rights issue. Our TP, in this scenario, is forecasted to be RM4.55," said the house.

In a separate note, Kenanga Research said the negative share price reaction to the recently proposed rights issue could be overdone, as the house sees it as a necessary step to preserve Alliance Bank’s longer-term strategies.

It sees buying opportunities amid the recent share price weakness, capitalising on Alliance Bank’s above-industry double-digit loan growth trajectory (versus the system's of about 6%).  

"This upholds a leading earnings per share growth of 10%, which even after a potential 9% dilution [post rights issue], would still register above its peer average of about 5%. 

"The retreat in share price also puts its dividend returns at more attractive levels of mid-5%, as opposed to mid-4% during its peak," said the house.

Kenanga noted that the RM600 million cash proceeds to be raised from the rights issue would support the group’s Acceler8 growth strategies (consistent loan growth), which is required for Alliance Bank to achieve its 11% return on equity target by FY2027. 

The group believes it would operate optimally at a common equity Tier 1 ratio of 12.5%-12.8%, which now stands at 12.4%. Capital injection from the proceeds would lead to an increase by 1.1 percentage points, it added.

Kenanga upgraded the bank to 'outperform' from 'market perform', with an unchanged TP of RM5.30.

"[Our forecasts are] maintained, as we have yet to reflect the potential dilution arising from the proposed rights issue. Assuming we reflect the illustrated 9% enlargement to the share base alongside the RM600 million capital injection, our calendar year 2026 book value per share of RM5.43 would be reduced to RM5.24 (-3.5%)," the house added.

Alliance Bank shares closed 3 sen or 0.7% higher, valuing the group at RM7.18 billion. Year-to-date, the shares shed nearly 5% or 24 sen.

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