Alliance Bank Bhd's strong share price performance over the past year may cap returns going forward and valuations are near to mean.
Alliance Bank Bhd's strong share price performance over the past year may cap returns going forward and valuations are near to mean.

NST Business

KUALA LUMPUR: Alliance Bank Bhd's strong share price performance over the past year may cap returns going forward and valuations are near to mean.

"This indicates easy money has already been made. Thus, we are now less bullish on the stock," Hong Leong Investment Bank Bhd (HLIB Research) said in a note today.

Further, the bank-backed research firm said Alliance Bank could also keep chalking in better grades in environmental, social and governance (ESG) scoring.

Alliance Bank would likely continue to see steady ESG score improvement with key priorities driving sustainability and empowering communities.

Under the environmental pillar, Alliance aimed to drive sustainability by implementing ESG practices in their business strategy and operations, providing sustainable financing opportunities to customers, and helping clients adopt sustainable practices.

As for the social category, the bank planned to empower communities by targeting small-medium enterprises (SMEs) through education, upskilling and financing, promoting financial literacy to vulnerable segments, and supporting digital transformation through digital solutions.

"Alliance Bank has also developed a Sustainability Framework and ESG Risk Acceptance Criteria for targeted sectors like palm oil, mining and quarrying, oil and gas (O&G), forestry and logging (combined, these segments make up more than 3.5 per cent of total loans)."

It said there was also prohibited lending to coal-related, unconventional O&G, firearms trading, entertainment sectors, along with projects that cause severe environmental damage and hostile business takeovers.

By 2025, Alliance Bank commits to growing RM5 billion in new sustainable banking business (roll-out starting in 2022) and reducing the bank's greenhouse gas (GHG) emission footprint, with key performance index (KPI) to be announced in the first quarter of FY23.

The overall FY22 guidance was largely intact on the bank's operational updates, save for the loans growth target, which may be at risk.

Key takeaways include outstanding repayment assistance (RA) still makes up 33 per cent of its loans book, and potentially 1/3 will expire in January 2022.

HLIB Research said the outlook for Alliance Bank remained broadly the same as before.

"Thus, our forecasts are unchanged. Considering its strong share price performance and valuations are near to mean levels, we are now less bullish on the stock."

The research firm has cut to Hold but raised Alliance Bank target price to RM3.55 from RM3.30.