Alliance Bank likely to see cut in earnings estimates

PETALING JAYA: Alliance Bank (M) Bhd has had its earnings and dividends per share cut by analysts following fresh concerns of asset deterioration and high loan loss provisioning.

In a note, CGS-CIMB said during a recent conference call, Alliance guided for a modification loss from hire purchase loans that would amount to about Rm60mil.

“It also expects Rm35mil of this to be unwound in FY2021, leading to a net modification loss of circa Rm25mil, which would be booked in FY2021,” it told clients.

The research outift has cut FY2021 earnings per share (EPS) and dividends per share (DPS) forecasts for the smallest bank in the country, taking into consideration this modification loss.

“We cut our FY2021 EPS forecast by 4.6% as we factor in the net modification loss of

Rm25mil which lowers our projected FY2021 net interest income by 2.9%.

“Given the bank’s plan to preserve capital by reducing dividend payment, we cut our assumed dividend payout for FY2021 from 43% to 20%. This, together with the EPS cut, lowers our projected FY2021 DPS from 11 sen previously to five sen; consequently, our target price falls from RM1.69 to RM1.63,” it added.

Alliance reported a lower net profit for the fourth quarter ended March 31, 2020 at Rm98.06mil, down about 12% from Rm111.78mil a year earlier.

It said the lower earnings was due to higher allowance for expected credit losses on loans, advances and financing and other financial assets of Rm98.29mil against Rm39.92mil for the same period, a year earlier.

In its note, CGS-CIMB said in a worst-case scenario, the bank is guiding for a credit charge-off rate of close to 100 basis points in FY2021 even higher than the 72 basis points recorded in FY2020.

“This substantiates our concerns for high loan loss provisioning in FY2021.”

It is retaining its “reduce” call on Alliance given the potential de-rating catalysts of a further deterioration in gross impaired loan ratio and high loan loss provisions in FY2021.

“Also, after the cut in our projected DPS, the dividend yield for FY2021 is not attractive at 2.3%,” it said, adding that it preferred Public Bank Bhd for exposure to the sector.

At the close, shares of Alliance finished lower by four sen to RM2.16, valuing the bank at some Rm3.34bil.