One of the biggest beneficiaries of OPR hike
? FY3/22 net profit was below our expectations, at 95% of our forecast due to
lower-than-expected non-interest income and higher-than-expected LLP.
? We are projecting net profit growth of 33.7% for Alliance in FY3/23F, to be
driven by the absence of CM and positive impact from OPR hike.
? Upgrade from Reduce to Hold as we see the bank as one of the largest
beneficiaries of OPR hikes.
FY3/22F net profit below our expectations but above consensus
Alliance Bank’s FY3/22 net profit was below our expectation at 95% of our forecast due to
lower-than-expected non-interest income and higher-than-expected loan loss provisioning
(LLP). However, FY22 net profit was above the market expectation at 104% of Bloomberg
consensus estimate. The FY22 DPS of 18.5 sen (dividend payout of 50%) was slightly
higher than our projected 17 sen (dividend payout of 43.6%). FY22 net profit surged by
59.6%, driven by a 59.2% decline in LLP.
A yoy jump in 4QFY22 net profit due to lower LLP
4QFY22 net profit rose 105.6% yoy, thanks to a 46.4% yoy plunge in LLP and a 5.6% yoy
drop in overheads. On a qoq basis, 4QFY22 net profit fell by 31.8%, attributable to a
318.6% surge in LLP and a 6.3% drop in net interest income.
Projecting 33.7% jump in FY3/23F net profit
We are projecting a 33.7% jump in Alliance Bank’s FY3/23F net profit, which would be
driven by (1) a 19.9% drop in loan loss provisioning, (2) the absence of Cukai Makmur
(CM) taxation (normalised tax rate of 25% in FY23F vs. 30.8% in FY22), and (3) an 11.8%
increase in net interest income, benefiting from the hike in overnight policy rate (OPR).
Raise net profit forecasts and target price
We raise our FY23-24F net profit forecasts by 3-4% as we factor in another 25bp hike in
OPR, on top of the 25bp hike we had reflected. For our DDM valuation, we raise our
assumed risk-free rate from 3.8% to 4% (to reflect the increase in interest rates) but reduce
the discount to our DDM value from 20% to 10% (given the easing Covid-19 credit risks).
All these lift our target price from RM3.17 to RM3.45.
Upgrade Alliance Bank from Reduce to Hold
We believe the OPR hike on 11 May 22 marks the beginning of an interest rate upcycle.
We see Alliance as one of the biggest beneficiaries of this trend given its high floating rate
loans ratio of 82.4% and CASA ratio of 48.9% at end-Mar 22. As such, we upgrade Alliance
from Reduce to Hold. On the flip side, we see higher credit risks for Alliance from Covid19 relative to some of its peers given its elevated credit charge-off rate of 63bp in FY20
and 121bp in FY21, and above-industry gross impaired loan ratio of 1.85% in Mar 22,
although these risks have been gradually easing. We prefer Hong Leong Bank for exposure
to the sector.