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Research houses maintain forecasts for Alliance Bank despite plan for swift sustainable banking business expansion

22/07/2022 12:46 PM

KUALA LUMPUR, July 22 (Bernama) -- Research houses are maintaining their earnings forecasts for Alliance Bank Malaysia Bhd for the financial years 2023 and 2024 (FY2023 & FY2024) despite the swift expansion planned for its sustainable banking business (SBB).

The bank yesterday during its second sustainability briefing announced an updated FY2025 allocation target of RM10 billion, which was doubled the RM5 billion projected previously.

CGS-CIMB Research said the latest estimate would not have any material impact on Alliance Bank’s net interest margin (NIM) in the next one to two years.

The new SBB includes sustainable business loans of RM6 billion, treasury investments of RM2.3 billion, capital market services of RM800 million and unit trust products and environmental, social and governance (ESG) mortgages of RM900 million.

“We think this would be largely achievable in view of the SBB expansion in the past one to two years.

‘’However, we do not expect this to push up its overall loan growth to a double-digit rate as the growth in SBB would be partly offset by a lacklustre increase (or even contraction) in loans extended to sectors with high ESG risks,’’ CGS-CIMB said in a note today.

Hence, it is retaining our FY2022 - FY2024 earnings per share forecasts and target price of RM3.45 for Alliance Bank.

Kenanga Research also left its FY2023 - FY2024 assumptions unchanged. The target price also remained at RM4.00 per share.

It projects net interest incomes of RM1.67 billion and RM1.68 billion for FY2023 and FY2024 respectively.

‘’But (we) are more upbeat from greater clarity on the group’s efforts to boost its ESG standing, mainly in its key small and medium enterprises (SME) target markets,’’ Kenanga Research said.

Hong Leong Investment Bank (HLIB) also opted to maintain forecasts since the reporting season is around the corner.

It expects a net interest income of RM1.15 billion and RM1.17 billion for FY2023 and FY2024, and FY2025 estimates of RM1.2 billion.

“In FY2022, Alliance Bank achieved all its topline sustainability goals. Thus, we continue to like its sustainability initiatives and we reckon that it will make further strides in posting better grades in our next ESG banking review,’’ it noted.

HLIB also retains its target price of RM3.85.

MIDF Research made a tweak to its earnings forecasts for FY2023, FY2024 and FY2025 upward by 1.0 per cent each as it adjusts to account for three 25 basis points in overnight policy rate (OPR) hikes this year and two hikes for next year (it previously accounted for two hikes in 2022 and three hikes in 2023).

“We also increase our credit costs expectations and loan growth forecasts, which were initially too conservative,” it said.

MIDF Research said although the latest SBB update is not expected to alter short-term earnings in any material way, it is positive on Alliance Bank’s effort in establishing itself as a Thought Leadership Centre for SME ESG issues.

“Alongside a notable boost to brand recognition, it’s an interesting means to broaden outreach not merely to pre-existing enterprises, but also to future clients via its university events.

“Its narrower scope of focus allows it to gain deeper insights and specialisation in comparison to more broad-based approaches toward ESG,” it noted.



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