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Monday, March 2, 2020

RHB research maintains 'buy' on Alliance Bank, cuts TP to RM2.70

Monday, 02 Mar 20209:11 AM MYT

KUALA LUMPUR: Alliance Bank Malaysia Bhd's efforts to mitigate net interest margin (NIM) pressure should lower its sensitivity to another overnight policy rate cut by Bank Negara.

"We applaud management’s efforts in mitigating NIM pressure which has lowered the margin’s sensitivity. FY21 NIM would now compress by 5bps, vs 8bps, if OPR is lowered by 25bps in March," said RHB research in a MOnday note.

Moving forward into 4QFY20, Alliance's management has advised that credit cost should remain beningn in the quarter.

However, Covid-19 poses a major downside risk and could potentially affect 3% of its loan portfolio, said RHB.

RHB maintained its buy call on Alliance Bank Malaysia Bhd with a lower valuation of RM2.70 as it believes its current valuation will provide sufficient downside protection.

For its 9MFY20 earnings result, Alliance's net profit of RM326mil was 23% lower year-on-year, which was 4% ahead of RHB's estimates but 5% below consensus.

Net interest income (NII) edged up marginally +0.8% as NIM continued to suffer from the OPR cut in May 2019 and a number of non-recurring factors.

Non-II grew 16% year-on-year (y-o-y) mainly on higher realised investment gains.

Cost-to-income ratio slipped 1.3ppts y-o-y to 48.2% on higher personnel (+7%) and establishment costs (+12%).

All-in annualised credit cost (including the bond impairment in 1QFY20) was at 67bps (9MFY19: 29bps) which resulted in 24% y-o-y decline in Patami

The annualised ROE at 9MFY20 slipped 2.9ppts to 7.5%.

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