Thursday 16 August 2012

Alliance Financial - Marginal impact from FRS139 adjustment


-  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.   


Source: AmeSecurities

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