KUALA LUMPUR (June 21): Hong Leong Investment Bank (HLIB) Research has turned bullish on Alliance Bank Malaysia Bhd on overdone selling and has upgraded the stock to a buy call with an unchanged target price of RM4.20.

In a note today, HLIB Research's analyst Chan Jit Hoong said Alliance Bank is one of the poorer performing banking stocks under its coverage as share price slumped 7% year-to-date.

"Besides being undervalued, we like Alliance for its product innovation, uncompromising strict risk and return-oriented business strategy," said Chan.

"Considering management's continual focus to drive up better risk adjusted return (RAR) loans, we believe NIM (net interest margin) compression can be mitigated (FY20: -5bp; guidance: 5-10bp slippage).

"We continue to like Alliance for its product innovation, uncompromising strict risk and return-oriented business strategy," said Chan. He also opined that Alliance Bank's value has emerged due to its recent price drop, adding that it is the only domestic bank offering close to 5% cash dividend yield.

"Although management is placing more emphasis on right-sizing its back office functions (to streamline and reduce costs), we gathered that additional sales force expenses have to be incurred to help to further propel the take-up of its Alliance One Account (AOA) and wealth management products; the move is expected to boost top-line growth," said Chan.

Nonetheless, no changes have been made to its FY20-FY21 earnings forecasts.

At 10.20am, shares of Alliance Bank were unchanged at RM3.78, valuing it at RM5.85 billion.