HLIB upbeat on Alliance Bank despite earnings slowdown

KUALA LUMPUR: Hong Leong Investment Bank (HLIB) remains optimistic about Alliance Bank Bhd despite a slowdown in earnings for the second quarter of FY27. The slowdown is attributed to a normalisation in the bank's earnings rather than a weakening of fundamentals, according to HLIB research. HLIB keeps a "Buy" rating on Alliance Bank with an unchanged target price of RM5.60, which represents a potential upside of 22.5% from its current price of RM4.57.

The bank's net profit is expected to reach RM899.3 million in FY27, up from RM826.5 million in FY26. HLIB notes that Alliance Bank faces short-term challenges, including rising Malaysian Government Securities yields, increased deposit competition, and potentially weaker wealth management income due to market volatility. However, the bank's loan growth is projected to remain within its FY27 target of 7.5 to 10%, with net interest margins anticipated to be between 2.23 and 2.28%.

Net credit costs are expected to stay within the guidance of 20 to 25 basis points. Early indications suggest potential repayment stress in certain loan categories, but the bank's loan loss coverage ratio of 113% should help mitigate any potential deterioration in asset quality. A potential increase in the overnight policy rate in the first half of 2027 could also support the bank's margins. Overall, HLIB maintains confidence in Alliance Bank's earnings trajectory and dividend visibility.