Maybank Investment Bank Bhd (Maybank IB) has upgraded Alliance Bank Malaysia Bhd to a BUY call from Hold with a higher target price (TP) of RM5.30 from RM4.60.

The upgrade follows expectations of robust loan growth and stable net interest margins (NIMs) for the bank's upcoming second quarter of financial year 2025 (2QFY25) results, due on Nov 28.

Maybank IB anticipates strong growth across all business segments, particularly in small and medium enterprises lending, and forecasts an 8%-10% loan growth for FY25, a target the bank is well-positioned to meet. Consequently, the research house has raised its FY25 loan growth forecast to 9% from 8%.

While NIMs are expected to remain stable on a quarter-on-quarter basis in 3Q24, Maybank IB foresees some pressure in 4Q24 due to seasonal deposit competition. The research house maintained its FY25 NIM forecast of 2.43%, aligning with management's guidance range of 2.4%-2.45%.

Despite the challenges in asset quality, particularly with Alliance ONE Account, Maybank IB continues to expect elevated credit costs, with a 35-basis points assumption for FY25, though this could ease in FY26 as the bank's management overlays of RM121 million come into effect.

With a market capitalisation of RM7 billion, Alliance Bank's share price closed at RM4.50, offering an 18% upside potential based on Maybank IB's updated TP.

The research house's earnings forecasts for FY25 remain unchanged but it has raised its FY26 and FY27 earnings by 2% and 1%, respectively, reflecting lower credit cost assumptions.