Broker: Maybank Investment Bank Berhad
Date of Report: June 1, 2025

Alliance Bank Malaysia Unveils 2-for-17 Rights Issue: Capital Boost, EPS Dilution, and Investor Implications

Overview: Maybank’s Latest Analysis on Alliance Bank’s Strategic Capital Move

Alliance Bank Malaysia Berhad (ABMB MK) has announced a significant 2-for-17 rights issue, with the rights price set at MYR3.33 per rights share. This capital-raising exercise, which will net approximately MYR602 million, is poised to enhance the bank’s Common Equity Tier 1 (CET1) capital ratio, albeit with a near-term dilution to earnings per share (EPS) and return on equity (ROE).
Maybank Investment Bank Berhad maintains a HOLD recommendation on Alliance Bank, with a target price (TP) of MYR4.80, underpinned by a FY25 price-to-book value (PBV) of 0.9x, a cost of equity (COE) of 10.1%, a return on equity (ROE) of 9.7%, and long-term growth of 4%.

Key Details of the Rights Issue

• Rights Price: MYR3.33 per rights share
• Entitlement: 2 rights shares for every 17 existing shares
• Discount: 20% discount to the theoretical ex-rights price (MYR4.1672), calculated from a 5-day VWAP of MYR4.3647 and after a second interim dividend per share (DPS) of 9.9 sen
• Gross Proceeds: MYR606.5 million (about MYR602 million net after expenses)
• Completion Timeline: Rights credited on June 16, trading from June 17-24, subscription results announced July 8, and listing expected July 15

Impact Analysis: Capital Strengthening and Shareholder Dilution

Enhanced CET1 Capital Ratio

The net proceeds from the rights issue will boost Alliance Bank’s CET1 ratio by approximately 1.1 percentage points, from 12.2% to a more robust 13.3% as of end-March 2025. This improvement provides a stronger capital buffer to support future lending activities.

EPS and ROE Dilution

Despite the positive capital impact, the rights issue will result in an estimated 8-9% dilution in EPS for FY26 and FY27. Assuming a 4% annual return on the net proceeds, the dilution translates to a drop in forecast EPS and a 4% decrease in book value per share (BVPS) for the same periods. ROAE is expected to edge down to 9.4% and 9.2% in FY26 and FY27, respectively, from current levels of 9.5% and 9.6%.

Theoretical Ex-Rights Price Calculation

Financial Summary and Forecasts

Key Financial Metrics

Shareholder and Market Snapshot

• Share price (as of report): MYR4.33
• 12-month price target: MYR4.80 (+11%)
• Market capitalization: MYR6.7 billion (USD1.6 billion)
• Issued shares: 1,548 million
• 52-week high/low: MYR5.38/MYR3.74
• 3m average turnover: USD2.8 million
• Major shareholders:
  • Vertical Theme Sdn. Bhd. – 29.1%
  • Employees Provident Fund – 9.3%
  • Global Success Network Sdn. Bhd. – 5.0%
• Foreign shareholding (April 2025): 22.47%

Financial Performance Trends and Key Ratios

Growth and Profitability

• Net interest income growth: 10.8% (FY25A), 5.7% (FY26E), 5.7% (FY27E)
• Non-interest income/total income: 12.0% (FY25A), 11.4% (FY26E), 11.1% (FY27E)
• Net interest margin: 2.45% (FY25A), 2.37% (FY26E), 2.36% (FY27E)
• Cost/income ratio: 48.0% (FY25A), 47.5% (FY26E), 47.2% (FY27E)

Asset Quality and Capital Adequacy

• Net NPL: 1.0% (FY25A), 1.1% (FY26E-FY27E)
• Gross NPL: 1.8% (FY25A), 2.0% (FY26E), 2.1% (FY27E)
• Loan loss coverage: 106.6% (FY25A), 106.0% (FY26E-FY27E)
• CET1 ratio: 12.2% (FY25A), 11.7% (FY26E), 11.8% (FY27E)
• Tier 1 capital ratio: 13.4% (FY25A), 11.7% (FY26E), 11.8% (FY27E)
• Risk-weighted capital ratio: 16.7% (FY25A), 14.7% (FY26E-FY27E)

Balance Sheet Highlights (MYR million)

Risk Factors and Market Position

Alliance Bank remains the smallest domestic financial institution in Malaysia by asset size. Its limited economies of scale could challenge future market share gains, particularly as larger banks intensify competition in the lucrative SME financing sector—a key niche for Alliance Bank.

Valuation and Market Performance

• Current price-to-earnings (P/E) ratio: 9.0x (FY26E), post-rights PER rises to 9.6x
• Forward rolling P/E average: Mean of 10.6x, with a -1SD of 8.3x and +1SD of 12.9x
• Forward rolling P/BV average: Mean of 1.1x, with a -1SD of 0.8x and +1SD of 1.5x
• Share price performance: 12-month absolute return +12%, relative to index +19%
• Consensus net profit for FY26E: 788 million; Maybank estimate: 748 million (-5.1% vs consensus)

Historical Analyst Recommendations and Target Prices

• Recent recommendations shifted from BUY to HOLD as of late May 2025
• Past 12 months: Price targets have ranged from MYR4.0 to MYR5.3, with the current HOLD at MYR4.8

Conclusion: Strategic Capital Raise Positions Alliance Bank for Growth, but Near-Term Dilution Weighs on Returns

Alliance Bank’s rights issue fortifies its capital position, supporting future growth and lending capacity. However, investors should weigh the near-term EPS and ROE dilution against the improved capital adequacy. The bank’s relatively small scale and exposure to intensified competition in SME lending present ongoing challenges. Maybank’s HOLD rating reflects a balanced view on risk and return, with a price target of MYR4.80—about 11% upside from current levels.

About Alliance Bank

Alliance Bank Malaysia Berhad provides integrated financial services spanning consumer and business banking, investment banking, Islamic banking, and stockbroking. Major shareholders include Vertical Theme Sdn. Bhd. (29.1%), Employees Provident Fund (9.3%), and Global Success Network Sdn. Bhd. (5.0%).
For further details and investment considerations, investors should consult the full financial disclosures and risk statements provided by the broker.