RHB Research has upgraded Alliance Bank Malaysia Bhd (ABMB) to buy from neutral at RM2.56 with a target price of RM2.90 due to its asset quality which is likely to stabilise in the upcoming quarter.
In a note on Jan 21, the research house said although minor stresses can still be seen, this was expected to improve sequentially. It said ABMB’s management is confident of containing FY20F credit cost within the 55-60 basis points target.
The research house said more prudent underwriting policies should help to better safeguard asset quality.
“Given the more prudent underwriting standards, we believe ABMB’s lending momentum will likely be impacted and may come in below its 6-7% loan growth target. We have conservatively imputed 5% loan growth in our FY20 earnings forecast.”
The research house believes that most negatives are reflected in its trough valuation and ABMB is staged for a recovery.
“We maintain our earnings forecasts pending 3QFY20F results, which are slated to be announced on Feb 25. We believe most negatives have already been priced in at the current trough valuation and expect earnings to recover on sequential improvement in asset quality,” it said.
ABMB’s shares traded 0.39% higher at RM2.56 before the midday break on Jan 21. – Jan 21, 2020
