KUALA LUMPUR: Alliance Bank Bhd's earnings are expected to moderate in the second quarter of its financial year 2027 (FY27), following substantial one-off recoveries in the preceding quarter.
However, Hong Leong Investment Bank (HLIB) said the slowdown reflected a normalisation in earnings rather than weakening fundamentals, with first-half growth remaining on track.
The research firm maintained its "Buy" recommendation on Alliance Bank with an unchanged target price of RM5.60, implying a potential upside of 22.5 per cent from RM4.57.
It expects the bank's net profit to rise to RM899.3 million in FY27 from RM826.5 million in FY26.
Alliance Bank faces near-term challenges from rising Malaysian Government Securities yields, stronger deposit competition and potentially weaker wealth management income amid market volatility.
HLIB said higher bond yields could weigh on treasury income and the value of the bank's fixed-income investments, although the overall earnings impact should remain manageable.
Loan growth is expected to remain within the bank's FY27 target of 7.5 to 10 per cent, with net interest margin projected at between 2.23 and 2.28 per cent.
Net credit costs are expected to remain within its guidance of 20 to 25 basis points.
HLIB said early signs of repayment stress had emerged in small and medium enterprise loans, mortgages and personal financing.
Still, the bank's loan loss coverage ratio of 113 per cent should provide a buffer against potential deterioration in asset quality.
A possible increase in the overnight policy rate in the first half of 2027 could also support margins.
Historically, Alliance Bank's net interest margin has improved by three basis points following a 25-basis-point rate increase.
"Overall, we are assured with Alliance Bank's 1H FY27 earnings trajectory and dividend visibility," HLIB said.
The firm maintained its positive outlook on the bank, citing its underlying earnings strength despite a more challenging near-term operating environment.
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