CGS International
May 27, 2025

Alliance Bank Malaysia Berhad: Strong Liquidity and Robust Loan Growth Set the Stage for Re-Rating

Executive Summary: Improved Liquidity Powers Growth, Re-Rating Potential Emerges

Alliance Bank Malaysia Berhad has delivered a solid FY3/25 performance, exceeding net profit expectations and demonstrating notable improvements in liquidity. This report analyzes the latest financials, key performance drivers, sector comparisons, balance sheet developments, ESG progress, and outlook for Alliance Bank and its peers. Investors and analysts will find a comprehensive breakdown of all relevant metrics, trends, and forward-looking statements.

Key Highlights

• FY3/25 net profit of RM750.7 million, up 8.7% year-on-year, in line with expectations
• Strong 4QFY25 net profit growth of 11.1% year-on-year, driven by surging Islamic banking income and a significant reduction in loan loss provisioning
• Net interest income rose 10.8%, Islamic banking income jumped 24.3%, NIM contracted slightly by 3bp to 2.45%
• Deposit growth of 6.8% quarter-on-quarter in 4QFY25, reducing loan-to-deposit ratio from 97.2% to 93.3%
• Dividend payout ratio at 40%, with FY25 DPS at 19.4 sen, slightly below forecast
• Target price upgraded to RM5.35; recommendation raised from Hold to Add
• Potential re-rating catalysts: robust loan growth and further write-backs in management overlay
• CY26F P/E of 7.5x, sector low and well below peer average of 9.5x

Financial Performance: Steady Growth and Improving Metrics

Operational Review: KPIs Met and Outlook for FY26

Alliance Bank met all its main KPIs for FY25:

• Loan growth: 12% (target 8-10%)
• Net interest margin: 2.45% (target 2.4%–2.45%)
• Cost-to-income ratio: 48% (target c.48%)
• Net credit cost: 31.9bp (target 30–35bp)
• ROE: 10.3% (target >10%)
• Dividend payout ratio: 40% (target 40–50%)

For FY26, the bank guides for:

• Loan growth: 8–10% (analyst forecast: 8%)
• Net interest margin: 2.4–2.45% (forecast: close to 2.4%)
• Cost-to-income ratio: c.48% (forecast: 48.1%)
• Net credit cost: 30–35bp (forecast: 24bp)
• ROE: ~10% (forecast: 10.6%)
• Dividend payout ratio: 50%

Liquidity and Funding: Strengthening the Balance Sheet

• Loan-to-deposit ratio improved from 97.2% to 93.3% in 4QFY25, reflecting aggressive deposit growth
• Total customer deposits surged 14.7% year-on-year to RM65.8 billion as of March 2025
• Total assets grew 10.7% year-on-year, reaching RM85.2 billion

Loan Book Analysis: Outpacing Industry Growth

• Alliance Bank’s loan growth significantly outpaced the industry (12% vs. 5.2%)
• Residential mortgage growth at 15.5% vs. industry’s 6.6%
• Working capital loans, primarily to SMEs, comprise 22.9% of the loan book
• Some segments like auto loans (-16.1%) saw contraction, while construction and credit card segments posted double-digit growth

Management Overlay and Risk Outlook

• Management overlay reduced to RM154 million at end-March 2025, down from RM169 million at end-December 2024
• Every 10% write-back in overlay could boost FY26 net profit by ~1.4%
• Exposure to US exporters is 3–4% of total loans; not seen as a material risk despite higher US tariffs
• Potential risks: slower loan growth, worsening asset quality, and rising deposit competition impacting cost of funds and NIM

Peer Comparison: Alliance Bank Among Regional and Local Banks

• Alliance Bank’s P/E for CY26F is the lowest among key Malaysian banks
• Dividend yield is competitive, with a sector-average ROE

Environmental, Social, and Governance (ESG) Initiatives

• ESG score: B+ (LSEG ESG Combined Score)
• Key ESG focus areas: SME financing, scaling up the Sustainability Assistance Programme, climate risk management, and GHG reduction
• Integration of ESG evaluation into credit-scoring and supplier onboarding processes
• Early achievement of RM10 billion Sustainable Banking Business (SBB) target (FY3/25), targeting RM15 billion by FY27
• Enhanced ESG disclosures, sustainable product frameworks, and climate action programmes for SMEs

Quarterly and Annual Financial Trends

• Net interest income for 4QFY25: RM371.4 million, up 8.3% year-on-year
• Islamic banking income for 4QFY25: RM141.4 million, up 23.6% year-on-year
• Loan loss provisions in 4QFY25 fell by 72.9% year-on-year to RM9.8 million
• Operating income for 4QFY25: RM563.2 million (+9.1% yoy); overhead expenses rose 16.6% yoy
• Net profit for 4QFY25: RM197.5 million (+11.1% yoy)
• Cost-to-income ratio for 4QFY25: 51.6%; full year FY25: 48%

Shareholder and Market Data

• Current share price: RM4.33
• Target price: RM5.35 (up from RM5.27)
• Market capitalization: RM6.7 billion (US\$1.59 billion)
• Free float: 71%
• Major shareholders: Vertical Theme (29.1%), Employees Provident Fund (10.9%), Focus Asia Strategies (4.8%)

Price and Performance Snapshot

• Absolute share price performance: -0.7% (1M), -18.3% (3M), +14.6% (12M)
• Relative to FBMKLCI: -2.4% (1M), -14.9% (3M), +19.9% (12M)

Conclusion: Upgraded Outlook and Investment Case

Alliance Bank Malaysia Berhad has demonstrated strong fundamentals, effective risk management, and sector-leading loan growth. Upgrades in target price and recommendation reflect confidence in its liquidity improvements and ability to deliver robust financial performance, even in challenging operating environments. The integration of ESG into its business strategy further positions the bank for sustainable, long-term value creation. Investors should monitor continued deposit growth, loan portfolio quality, and further write-backs of management overlays as key re-rating catalysts in the coming quarters.