Analysts see bright prospects for Alliance in FY18, FY19
KUALA LUMPUR: Alliance Bank Malaysia Bhd’s (Alliance) prospects in the financial year 2018 (FY18) and FY19 have been viewed positively by analysts, as the bank’s growth is expected to be driven by its corporate strategy.
Following a recent corporate visit, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) noted that Alliance has completed its corporate reorganisation and it is now focusing on scaling up its new businesses.
“After the completion of its corporate reorganisation, the group stated that the focus will be on scaling up its two main products going forward, namely Alliance One Account (AOA) and Alliance at Work.
“While the group had begun introducing the products concurrently with the corporate reorganisation, we believe that following the latter’s completion; the group will be in a better position to succeed in its plans,” the research house said.
MIDF Research also said Alliance has shown good traction for its AOA.
“We like its AOA as we believe that it brings to the market an in-demand product. Although, loans consolidation by retail borrowers is not new, we opine AOA offer potential borrowers a well-crafted package,” it opined.
It also pointed out that the take up rate for AOA have been very encouraging.
“Based on management’s first quarter of the financial year 2018 (1QFY18) update, sales were more than RM300 million as at July 2017, while the incremental revenue from this was RM0.3 million which was faster than the management expected,” it added.
Furthermore, it highlighted that the yield for AOA is better given how it is packaged.
“AOA consolidate a borrower’s mortgage, personal loans, auto loans and credit card into one account. The mortgage portion of the loan is fixed while the remaining is flexible more akin to an overdraft facility but with lower rates.
“While the group will be able to charge higher rates than a conventional mortgage, the amalgamated loan will also result in lower rates for the borrowers.
“Hence, in our opinion the attractiveness of the AOA,” the research team commented.
All in, MIDF Research believed that this would curtail any pressure on net interest margin (NIM) and possibly improve it.
Of note, NIM improved by 10 basis points (bps) year-on-year (y-o-y) to 2.32 per cent in 1QFY18.
Aside from that, the research team also noted that Alliance’s ‘Alliance at Work’ could benefit SMEs.
“Besides offering facilities such as cash management to SMEs, it also offer ‘cash to home’ solution which is aimed at foreign workers of SMEs.
“These workers will be able to open a bank account, which is previously very difficult for this group, and remit money to their home country using digital application such as a mobile app.”
“We believe the value proposition is twofold; ease for foreign workers, and more importantly, steady supply of CASA for the group.
“It will also appeal for the companies in terms of avoiding physical cash transaction for its payroll. Besides being a cheap source of funding, the group will also be able to earn fee income for the service,” it explained.
On that note, MIDF Research said Alliance has a strong presence amongst SMEs despite the competitive space in the sector.
“It has a strong presence in the Klang Valley, Sabah, Sarawak and Johor. As the SMEs grow, the group will be able to offer more product and services, for example starting with cash management and then to offering working capital loans, terms loans and property financing.
“This means that the group will be able to develop customer loyalty amongst the SMEs. Furthermore, the loans for SMEs are also better yielding when compared to corporates.