- We are maintaining
our HOLD rating on Alliance Financial Group Bhd (AFG), with an unchanged fair value
of RM4.40/share. This is based on FY13F’s ROE of 13.2% and consequently, a fair
P/BV of 1.7x.
- AFG’s 1QFY13 net
earnings, if annualised, was -2.2% below our forecast and -3.9% below
consensus, accounting for 25.0% and 24.5% for the full-year numbers, respectively.
- Gross loans
expanded 3.5% QoQ in 1QFY13, or at a decent annualised rate of 13.9%. This is
in line with the company’s targeted 14% to 15%, but above our forecast of
5.7%. NIM compression was at 5bps QoQ,
less than our earlier estimated 14bps QoQ decline in 4QFY12.
- Non-interest income
was relatively flat on a QoQ basis, propped up partly by unrealised gains on
derivatives. We expect this to remain volatile.
- Gross impaired
loans ratio improved to 2.4% in 1QFY13 from 2.5% in 4QFY12. However, 4QFY12’s
impaired loans balance of RM612mil was restated from the previous balance of
RM601mil, due to full adoption of FRS139.
- AFG adopted full
FRS139 from 1QFY13 onwards, but the impact was less than expected with the
collective assessment ratio (as percentage of gross loans less individual
assessment balance) unchanged at 1.5%. We had expected collective assessment
ratio to be lower. The unchanged ratio was attributed to exposures which were
not individually known to be impaired, but which are now placed into pools of
similar assets with similar risk characteristics to be collectively assessed
for losses that have been incurred but not identified yet.
- Loan loss cover was
at 86.6% in 1QFY13, marginally lower than the restated 87.7% (previously before
restatement: 108.5%) in 4QFY12.
- AFG’s top line
growth is ahead of our expectations given its strong loans growth as well as
much lower-thanexpected NIM compression, compared to the previous quarter.
- However, we foresee
less room to revise earnings upwards, given that loan loss provision is likely
to normalise ahead. The revision to its collective assessment ratio was also
less than our expectations. Maintain HOLD.
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