Hi.
I was using UE5 and try to create landscape with alpha. And i’ve got the same problem.
I’ve tried two days, finally I realized if you import a .png file to UE5, no matter how you set the picture format, whether if it is a 16 bit or 8 bit , RGB or Gray, it just doesn’t work. But if you import a .jpg file it will magically work. Maybe .tga file will work too? I didn’t tried that.
I’m not sure about if it’s working on UE4. Cause I 've never noticed someone mentioned this. So I believe this is a bug.