Period 1Q13
Actual vs.Expectations The 1Q13 PAT of RM124.5m was within the
consensus’ forecast (24%) and that of ours (24%).
Dividends Interim net dividend of 6.6 sen.
Key Result Highlights
The 1Q13 13.0% ROE achieved was within our expectation. The
net interest income of RM173.9m grew 6.3% QoQ, supported by a 3.4% growth in
gross loans and a higher leverage with an increased L/D ratio. As at
end-June12, gross loans stood at RM25.9b (+3.4% QoQ; +14.2% YoY), above our
full year loan growth forecast of 11%. Total deposits grew only 0.8% QoQ to
RM34.6b, resulting in a higher loan/deposit ratio of 80.2% (vs. 4Q12: 76.2%).
The 1Q13 non-interest income of RM145.5m saw an increase of 3.1% YoY, driven by
treasury gains and trade finance.
Post-MFRS139, the gross impaired loans stood at RM611.0m
with the gross impaired ratio improving to 2.4% (from FY12’s 2.5%). The RM9.3m
write-back in provisioning was due to bad debts recoveries. Loan loss coverage
was at 86.6%.
Meanwhile, cost was higher with a cost-to-income ratio of
50.5% (vs. 4Q12’s 49.8%) and we also saw NIM was higher during the quarter,
upped by 7bps to 1.85% in 1Q13 vs. 1.78% in 4Q12, due to increase in L/D ratio.
Outlook
The momentum of its loan growth is sustainable driven by its
aim of growing SME loans (+18%), and mortgage loans (high teens). Our loan
growth forecast of 11% YoY for AFG is thus highly achievable with the risk
actually on the upside.
However, the immediate challenge is that the continuous
competition could have a negative impact on its NIM. In fact, the management
has guided for a potential NIM compression of 10bps as the group’s strategy is
to drive growth in its mortgage and SME loans that are highly competitive,
which has contributed to lower asset yields apart from rising funding cost.
AFG could be well-positioned in a slowdown environment,
where its credit cost is likely to outperform its peers considering its lower
levels of new NPL formation and aggressive provisioning in the past.
Change to Forecasts We are maintaining our FY13E PAT of
RM522.0m and that of FY14 of RM549.4m.
Rating MAINTAIN MARKET PERFORM
DBS has clearly stated that it has no intention to increase
its existing stake in AFG. Given our optimistic earnings expectations (EPS
growth of 16.6% for FY12 and 8.2% for FY13), which is in line with management’s
pro-growth strategies, AFG’s current headline ROE of 12.9% appears justified to
command a 1.4x P/BV valuation (our targeted multiple).
As such, we believe that the share price has already factored
in the earnings growth trend.
Valuation Maintaining our MARKET PERFORM
rating and TP of RM4.00 based on 1.4x the FY14E book value of RM2.89.
Risks We actually see more upside risk than
downside, as the stock could potentially trade up to 1.8x-2.0x PBV (or RM4.80-RM5.30),
which would be at the +2SD P/BV level of 1.9x (or RM5.10).
Source: Kenanga
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