ABMB: Bank Posts Solid First Quarter Results, Target Price Revised Upward
| Investment Bank | MBSB RESEARCH |
|---|---|
| TP (Target Price) | RM4.69 (+4.0%) |
| Last Traded | RM4.51 |
| Recommendation | NEUTRAL |
Alliance Bank Malaysia Berhad (ABMB) reported a core net profit (NP) of RM199 million for the first quarter of FY26, aligning with both MBSB Research’s and street forecasts. This performance represents a robust 12% year-on-year increase and a modest 1% quarter-on-quarter improvement, positioning the bank well for the fiscal year.
Performance Review and Operational Highlights
The solid earnings were primarily driven by improved Net Non-Interest Income (NOII) and effective management of Operating Expenses (OPEX), which successfully offset significant provision charges incurred during the quarter. Management expressed optimism, noting that 1QFY26 is typically the weakest quarter seasonally, suggesting stronger performance in subsequent quarters is anticipated, even with ongoing Net Interest Margin (NIM) compression. MBSB Research highlighted ABMB’s strong topline performance as key to offsetting higher OPEX growth, which is projected to exceed 7% year-on-year for FY26. The bank’s cost-to-income ratio for FY26 is expected to remain comfortably below the 48% target, with 1QFY26 recording 45.1%.
Non-Interest Income (NOII) emerged as a standout performer, driven by enhanced forex trade and wealth management income, alongside exceptional investment returns. This trend is expected to continue, underpinning the bank’s profitability. MBSB Research has revised its core net profit forecasts for FY26F, FY27F, and FY28F upwards by +6%, +5%, and +4% respectively, to better reflect the anticipated strong NOII performance.
Loan Growth, Asset Quality, and Net Interest Margins
ABMB continues to demonstrate robust loan growth, maintaining one of the highest rates in the industry. Management remains highly confident in its NOII outlook and believes the bank is on track to comfortably exceed its 10% Return on Equity (ROE) target for FY26.
Despite a notable 13 basis points sequential increase in the Gross Impaired Loan (GIL) ratio to 1.96% in 1QFY26, management views the overall asset quality situation as not overly concerning. The bank undertook a substantial 60 basis points overlay provision during the quarter but reiterated its FY26 Net Credit Cost (NCC) guidance of 30-35 basis points, suggesting no immediate widespread asset quality issues. Sporadic cash flow constraints among SMEs were noted as a contributor to the uptick in SME GILs.
NIM compression is expected to persist, influenced partly by an anticipated 3 basis points impact from the Overnight Policy Rate (OPR) cut. However, management has indicated a willingness to absorb NIM compression, provided it is compensated by strong loan volume growth and increased NOII from cross-selling activities.
Outlook and Recommendation
In light of these factors, MBSB Research has maintained its NEUTRAL recommendation for Alliance Bank Malaysia Berhad. The target price has been revised upward to RM4.69 from RM4.20, based on a revised FY26F Price-to-Book Value (P/BV) of 0.99x (previously 0.87x). This adjustment accounts for ABMB’s share base post-rights issuance, updated earnings prospects, and ROE-based valuations. The current P/BV of 0.92x is considered expensive, trading above the bank’s 10-year mean of 0.81x, which contributes to the neutral stance despite the positive operational performance and target price increase. Key downside risks identified include steeper-than-expected NIM compression, weak loan growth, and underperforming NOII.
