This article first appeared in The Edge Malaysia Weekly on April 28, 2025 - May 4, 2025

ALLIANCE Bank Malaysia Bhd’s (KL:ABMB) share price touched RM5.40 on Feb 14 — the highest level since 2013. At that intra-day-high, the banking group was at 1.2 times its price-to-book (P/B) value, which was considerably high given its size.

A Bloomberg article reporting that Vertical Theme Sdn Bhd (VT), the banking ­­group’s largest shareholder, was mulling the sale of its 29.06% stake to DBS Group Holdings Ltd helped fuel the climb in Alliance Bank’s share price.

Singapore’s sovereign wealth fund Temasek Holdings holds 49% of VT through Duxton Investments Pte Ltd, while the remainder is held by RRJ Capital founder Richard Ong, hotelier Ong Beng Seng, and corporate adviser Seow Lun Hoo through Langkah Bahagia Sdn Bhd.

If the deal goes through, it will pave the way for DBS to enter the Malaysian banking industry, a market that its Singaporean peers, Oversea-Chinese Banking Corp and United Overseas Bank Ltd, have long been in.

Nonetheless, Alliance Bank’s share price has retreated from the peak since then, falling to a low of RM3.93 on April 9. Selling pressure piled up following its announcement of a cash call, although it was not a big surprise given its relatively low capital ratio. The recent turn in market sentiment caused by the mounting trade tensions globally added more pressure on the stock.

It closed at RM4.30 last Thursday, valuing Alliance Bank — the smallest of Malaysia’s eight banking groups by asset size — at a P/B of 0.97 times. For peer comparison, Affin Bank Bhd (KL:AFFIN) is valued at 0.56 times, while AMMB Holdings Bhd (KL:AMBANK) is valued at 0.83 times, and Hong Leong Bank Bhd (KL:HLBANK) at 1.06 times. (See table.)

Although Alliance Bank’s valuation has dropped below one time P/B, investment analysts don’t think the banking group is undervalued.

“Not really [it is not undervalued]. We recently downgraded them, and our forecasts don’t even include the possible share price dilution yet,” says Samuel Woo, MIDF Research’s banking sector analyst.

“Their over-reliance on fee income [at a time the capital market is not doing so well] is an issue, because of the poor outlook on that front,” Woo tells The Edge.

MIDF Research recently downgraded the banking sector to “neutral”, in light of anticipated worsening economic conditions. Woo expects the banks will face headwinds, which include weaker loan growth, poorer non-interest income (NOII) outlook, higher provisioning costs, and possible net interest margin (NIM) compression.

“The reason why their share price shot up so much in recent times was because of the news on DBS. [Then] the share exercise [rights issue] affects its ROE (return on equity) quite badly, so it brings down its valuation quite a bit,” says Woo.

Alliance Bank is raising RM600 million through a proposed rights issue, which Bank Negara Malaysia approved last week.

The timing seems right for the bank to undertake a rights issue because of the climb in its share price. Over the past two years, it has gained 18.8% from RM3.67 at end-2022. However, the news did not go down well and selling emerged after the announcement.

According to a back-of-the-envelope calculation, based on the amount raised and its issued share capital of 1.548 billion shares, the rights shares will be priced at roughly 38.7 sen on a one-for-one basis.

Assuming the rights issue will be priced at a 10% discount over last Thursday’s closing of RM4.30, the cash call would hypothetically be priced at RM3.87 on the basis of one rights share for every 10 shares held.

According to Maybank Investment Bank Research, the rights issue would shore up Alliance Bank’s Common Equity Tier-1 (CET1) ratio to a more comfortable 13.5%, but equity and earnings dilution would be inevitable for shareholders who are not willing to fork out more capital.

Nevertheless, Maybank IB’s analyst foresees that a stronger capital base will enable the banking group to experience better growth.

“Alliance Bank’s CET1 ratio as at end-December 2024 stood at 12.4%, which is one of the lowest among peers. The RM600 million would improve the position to about 13.5%, which is much more comfortable, in our view.

“The improved capital position will also support the bank’s growth strategies ahead,” states Maybank IB Research in a March 24 report. It adds that the exercise would cause an 8% dilution in Alliance Bank’s FY2026 estimated earnings per share (EPS), and a reduction in ROE to 9.3% from 10%.

Some opine that having Beng Seng — the founder and managing director of Hotel Property Ltd — as an indirect substantial shareholder would keep Alliance Bank on the watch list. This is because the tycoon is embroiled in a high-profile corruption case in Singapore.

Last year, the Malaysian-born tycoon was charged with obtaining gifts and obstructing justice together with former Singapore transport minister S Iswaran. Last Thursday, Beng Seng, who is currently out on bail, was granted approval by a district court to leave Singapore to travel to the US, Britain and Italy from April 28 to May 16 for work and medical reasons. 

Iswaran was sentenced to a one-year prison term for accepting gifts valued at over S$300,000 from Beng Seng during official dealings related to the Formula One race.

Beng Seng’s interest in the bank, through VT, has drawn attention because of the corruption probe. Many wonder if the probe triggered the question of whether it was still fit and proper for the tycoon to remain as a shareholder of Alliance Bank. Would he have to exit VT, which owns a 29.06% stake in the bank, for that reason too?

Analysts who spoke to The Edge do not think Beng Seng’s being an indirect substantial shareholder would affect the valuation of Alliance Bank.

Moving forward, analysts are watching if the banking group’s Acceler8 2027 — a four-year strategic plan launched in 2023 with the goal of making Alliance Bank a preferred bank by FY2027 — will start bearing fruit.

Under the plan, Alliance Bank aims to achieve loan growth of between 8% and 10%, maintain an ROE of above 11% and keep cost-to-income at below 45%. The plan emphasises diversifying beyond traditional small and medium-size enterprises (SMEs) into consumer, wealth management and Islamic banking.

For MIDF’s Woo, Alliance Bank will deserve a better premium valuation only when the group achieves its targets under the plan. 

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