Broker: Maybank Investment Bank Berhad
Date of Report: July 7, 2025
Alliance Bank Malaysia: Navigating Growth and Resilience Amid Rights Issue – A Comprehensive Investor Analysis
Alliance Bank Malaysia: Navigating Growth and Resilience Amid Rights Issue – A Comprehensive Investor Analysis
Overview: Targeting Sustainable ROE Despite Dilution
Alliance Bank Malaysia Berhad (ABMB MK) continues to chart a course toward sustained profitability, aiming for a 10% Return on Equity (ROE) even after the effects of a recent rights issue. While some dilution in ROE is expected, management remains optimistic that robust SME and corporate loan growth, treasury opportunities, and increased investment banking activity will drive value. The rights-adjusted target price (TP) stands at MYR4.68, with a HOLD rating maintained.
- Current Price: MYR4.40
- 12-Month Target Price: MYR4.68 (+6%)
- Market Capitalization: MYR7.6 billion (USD1.8 billion)
- Issued Shares: 1,730 million
- Free Float: 29.1%
- 52-Week High/Low: MYR5.24 / MYR3.72
Financial Highlights and Performance Metrics
| FYE Mar (MYR m) |
FY24A |
FY25A |
FY26E |
FY27E |
FY28E |
| Operating Income |
2,020 |
2,270 |
2,397 |
2,528 |
2,658 |
| Pre-Provision Profit |
1,047 |
1,181 |
1,268 |
1,347 |
1,421 |
| Core Net Profit |
690 |
751 |
762 |
809 |
853 |
| Core FDEPS (MYR) |
0.43 |
0.47 |
0.44 |
0.47 |
0.49 |
| Net DPS (MYR) |
0.22 |
0.19 |
0.18 |
0.19 |
0.20 |
| Core FD P/E (x) |
8.3 |
9.5 |
10.0 |
9.4 |
8.9 |
| P/BV (x) |
0.8 |
0.9 |
0.9 |
0.8 |
0.8 |
| Net Dividend Yield (%) |
6.2 |
4.3 |
4.1 |
4.4 |
4.6 |
| Book Value (MYR) |
4.52 |
4.83 |
4.99 |
5.27 |
5.56 |
| ROAE (%) |
9.9 |
10.1 |
9.3 |
9.1 |
9.1 |
| ROAA (%) |
1.0 |
0.9 |
0.9 |
0.9 |
0.9 |
Key Strategic Initiatives: Positioning for Growth
Management is unwavering in its target of a 10% ROE, banking on several drivers:
- SME and Corporate Loan Growth: Anticipated 8-10% growth in FY26, supported by robust demand in services, trading, and manufacturing sectors.
- Treasury Opportunities: Expected to benefit as interest rates decline.
- Investment Banking Activity: Increased deal flow, including IPOs, is projected to lift non-interest income.
- Credit Costs: Management targets 30-35 basis points in FY26, with possible upside from resolution of several accounts.
- Deposit Competition: Competition has moderated since the end of 2024, supporting the bank’s net interest margin (NIM) guidance of 2.40-2.45% for FY26 (FY25: 2.45%).
SME Portfolio: A Core Strength
SME loans remain a mainstay, comprising about MYR19 billion, or 30% of the group’s total portfolio. Although there has been a moderate uptick in impaired loans, the SME gross impaired loans ratio stood at a manageable 1.9% as of end-March 2025. The SME book spans the service, trading, and manufacturing sectors, cementing ABMB’s role as a key lender to Malaysian businesses.
Capital and Rights Issue: Balancing Growth and Dilution
ABMB’s recent 2-for-17 rights issue raised approximately MYR600 million, boosting its Common Equity Tier 1 (CET1) ratio to a more comfortable 13% from 12.2%. Post-rights, forecasted FY26-27 earnings are up by 1.8% and 2.3%, respectively. However, due to the enlarged share base, earnings per share (EPS) are diluted by about 9% for both years. The dividend payout ratio is expected to be marginally higher at 41%, in line with FY25’s payout.
Comprehensive Financial Position
| Balance Sheet (MYR m) |
FY24A |
FY25A |
FY26E |
FY27E |
FY28E |
| Cash & Deposits with Banks |
4,597 |
5,201 |
5,293 |
5,527 |
5,773 |
| Available-for-Sale Securities |
13,918 |
15,265 |
16,028 |
16,829 |
17,671 |
| Loans & Advances |
54,721 |
61,419 |
65,963 |
69,532 |
73,371 |
| Total Assets |
76,946 |
85,217 |
90,699 |
95,423 |
100,477 |
| Customer Deposits |
57,398 |
65,835 |
70,928 |
74,765 |
78,894 |
| Total Liabilities |
69,771 |
77,549 |
82,054 |
86,300 |
90,851 |
| Shareholders’ Funds |
7,175 |
7,668 |
8,645 |
9,123 |
9,626 |
Key Ratios and Profitability Outlook
- Net Interest Margin: 2.48% (FY24), 2.45% (FY25), 2.39% (FY26-28)
- Cost/Income Ratio: Improving from 48.2% in FY24 to 46.5% in FY28
- Gross Loans Growth: 13.6% (FY24), 12.0% (FY25), 7.5% (FY26)
- Customer Deposits Growth: 12.9% (FY24), 14.7% (FY25), 7.7% (FY26)
- Loan Loss Coverage: 100.6% (FY24), rising to 106.0% by FY26-28
- Gross NPL Ratio: 2.1% (FY24), improving to 1.8% (FY25), and stabilizing around 2.0-2.1% through FY28
- ROAE: 9.9% (FY24), 10.1% (FY25), 9.3% (FY26), 9.1% (FY27-28)
- CET1 Ratio: 12.5% (FY24), 12.2% (FY25), 13.0% (FY26-28)
Share Price and Market Performance
- 12-Month Absolute Performance: +18%
- Relative to Index (12-Month): +23%
- Foreign Shareholding (June 2025): 21.50%
- Major Shareholders: Vertical Theme Sdn. Bhd. (29.1%), Employees Provident Fund (8.9%), Global Success Network Sdn. Bhd. (5.0%)
ABMB shares have shown resilience, with price movements closely tracking the Kuala Lumpur Composite Index. The stock has maintained a price-to-book value (P/BV) below its long-term mean, reflecting a cautious but steady investor sentiment.
Risk Factors: Competitive and Market Headwinds
- Scale Disadvantage: As Malaysia’s smallest domestic financial institution by asset size, Alliance Bank faces scale disadvantages compared to larger peers, potentially hindering future market share expansion.
- SME Segment Competition: Larger banks may intensify competition for the SME segment, potentially eroding ABMB’s niche positioning and margins.
Historical Recommendations and Target Price Movements
- Buy recommendations dominated from June 2022 to August 2024, with target prices ranging from RM3.9 to RM5.2.
- HOLD stance has become more prevalent since August 2024, with recent target prices adjusted to RM4.5–RM4.7 in line with rights issue dilution and macroeconomic factors.
Summary and Investment Outlook
Alliance Bank Malaysia remains a focused player in the Malaysian financial landscape, with a robust SME portfolio, improving capital ratios, and a disciplined approach to risk management. While challenges persist—especially around scale and competition—the bank’s management is proactively leveraging opportunities in loan growth, treasury, and investment banking to drive returns. The HOLD rating and a modest upside to the target price reflect a balanced outlook, with steady dividends and prudent capital management underpinning shareholder value.
