AFFIN Hwang Capital Research has kept its sell call on Alliance Bank Malaysia Bhd (ABM) after its FY20 earnings declined 21% y-o-y to RM424.2 mil.
In a note today, Affin Hwang maintains the 12-month price target at RM2.18. No dividends from ABM were proposed in 4QFY20.
“Management stepped up pre-emptive provisioning in 4QFY20 and was impacted by higher delinquency rates during the quarter (when MCO commenced).
“Meanwhile, we were relieved to see that FY20’s fund-based income was flat y-o-y despite the OPR cut, as the group benefited from continuous growth of higher-yielding loans and lower funding cost,” Affin Hwang analyst Tan Ei Leen wrote in a note today.
ABM saw a weaker 4QFY20 net profit (-12.3% y-o-y and -26.8% q-o-q).
“The favourable pre-provision profits (PPOP) of RM882.3 mil in FY20 (+4% yoy) was offset by higher allowances for expected credit losses driven by a large account impairment of RM59.6 mil, additional macroeconomic variables overlay of RM22 mil, personal financing delinquency of RM12.3 mil and expected credit loss model review of RM10.8 mil,” Tan said.
Affin Hwang said at the fund-based income line, ABM saw net interest margin compression of 10bps y-o-y to 2.4% for FY20, “as the impact of the 50bps OPR cut and delinquency pricing revisions were mitigated by overall expansion of higher risk-adjusted returns loans (driven by the Alliance One Account, personal financing and SME loans) and lower funding cost in 4QFY20. Its gross loans grew by 2.2% y-o-y in FY20 while CASA ratio also improved to 37.4% vs 35.5% in FY19.”
Affin Hwang said it remains cautious on the banking sector, largely due to a subdued economic outlook in 2020-21, underlying its tone over its sell call for ABM.
“We remain cautious of ABM’s asset quality due to a subdued economic outlook and a potential rise in unemployment rate in the country (our forecast at 8% for 2020),” said Tan. – June 26, 2020
