Period 2Q13/1H13
Actual vs. Expectations The 1H13 PAT of RM266.5m was within the
consensus’ forecast (51%) and that of ours (51%).
Dividends No
dividend was announced.
Key Result Highlights The 2Q13 net interest income of RM190.7m
grew 9.7% QoQ, supported by a 3.0% growth in gross loans and a higher leverage
with an increased L/D ratio. As at end-Sep12, the total gross loans stood at
RM26.6b (+3.7% QoQ; +13.2% YoY), above our full-year loan growth forecast of
11%. Total deposits grew only 1.2% QoQ to RM35.0b, resulting in a higher
loan/deposit ratio of 81.3% (vs. 1Q13: 80.2%). The 2Q13 non-interest income of
RM148.3m saw a marginal increase by 1.9% QoQ, driven by treasury gains and
trade finance.
Post-MFRS139, the gross impaired loans stood at RM600.3m
with the gross impaired ratio improving to 2.3% (from 1Q13’s 2.4%). The RM7.1m
write-back in provisioning was due to bad debt recoveries. The loan loss
coverage meanwhile was at 86.4%.
Meanwhile, the cost expense was lower with a cost-to-income
ratio of 45.5% (vs. 1Q13’s 50.5% & 2Q12’s 45.5%). NIM was higher during the
quarter, rising 15bps to 2.0% in 2Q13 vs. 1.85% in 1Q13 due to the increase in
the L/D ratio and a broader interest spread.
Outlook The momentum of its loan growth is
sustainable driven by its aim of growing its SME and mortgage loans (targeting
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, management has
guided for a potential NIM compression of 10bps as the group’s strategy to
focus on mortgage and SME loans will see it competing more in these two highly
competitive segments, which had contributed to its 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 FY14 PAT of RM549.4m.
Rating MAINTAIN
MARKET PERFORM
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 (which is also our targeted multiple).
However, we believe that the share price has already factored
in the earnings good growth trend.
Valuation Maintaining
our MARKET PERFORM rating and TP of RM4.00 based on 1.4x FY14E book value of
RM2.89.
Risks We actually see more upside risks than downside
as the stock could potentially trade up to 1.8x-2.0x PBV (or RM4.80-RM5.30),
inline with the +2SD level above the mean.
Source: Kenanga
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