HLBANK: Financial Firm Delivers Strong Quarterly Performance on Operational Efficiency, ‘Buy’ Rating Affirmed

Alliance Bank Malaysia Berhad (ABMB) delivered an encouraging set of results for the first quarter of FY26, with net profit increasing 12.5% year-on-year to RM198.7 million. This performance, largely driven by higher operating income, was in line with analyst expectations, constituting 25% of the full-year forecast. The bank recorded an annualised Return on Equity (ROE) of 10.4%.

Operational Strength and Efficiency

The significant improvement in performance was primarily attributable to higher total operating income and strong cost management. Total net interest income (NII), inclusive of Islamic net financing income, rose 7.4% year-on-year due to increased loan volume. Despite a marginal 3 basis point sequential contraction in Net Interest Margin (NIM) to 2.42% due to higher funding costs, the bank demonstrated effective cost control. Overhead expenses increased by 7.1% year-on-year, mainly due to higher personnel and IT costs. However, the Cost-to-Income (CTI) ratio notably improved to 45.1% in IQFY26, down from 48.0% in FY25, reflecting positive “JAWs” where income growth outpaced expense growth. Non-interest income (non-NII) was a significant contributor, surging 54.9% year-on-year, bolstered by higher client base fee income, treasury and investment income, and gains from FVOCI.

Asset Quality and Outlook

Loan growth maintained a healthy pace, accelerating to 9.9% year-on-year to RM62.7 billion, within management’s target of 8-10% for FY26. This growth was broad-based, with increases in Commercial and Corporate Banking, SME, and Consumer banking loans. Total deposits also grew by 12.5% year-on-year.

However, the bank faced some pressures on asset quality, and its near-term outlook remains cautious due to external uncertainties. Net credit cost (NCC) rose to RM89.7 million from RM45.8 million a year ago, primarily due to higher “business as usual” Expected Credit Loss (ECL) provisions across consumer and commercial segments. The gross impaired loans (GIL) ratio slightly deteriorated to 1.96% from 1.83% in 4QFY25. Management has trimmed its FY26 NIM guidance to 2.37-2.43% from 2.40-2.45% amid anticipated OPR cuts and increased competition, though it expects volume growth and strong non-NII to cushion this compression. Despite these headwinds, management is committed to its Acceler8 2027 strategy and maintaining key targets including loan growth, ROE, CTI ratio, and dividend payout ratio. Sustainability financing efforts are also on track, nearing its RM15.0 billion target by FY27.

Investment Bank’s Recommendation

TA Securities maintains its “BUY” recommendation on Alliance Bank Malaysia Berhad, with a target price (TP) of RM4.90. This valuation is based on an implied Price-to-Book Value (PBV) of approximately 0.91x, derived from the Gordon Growth Model.