Alliance Financial Group’s (AFG) FY12 net profit was in line
with consensus and our expectations, representing 102.4% of our full-year
forecast. This was largely attributable to
its robust non-interest income (+41.8% y-o-y) and loans growth (+11.3%) that
was in line with the industry. The group’s asset quality remains intact as its
net impaired loans ratio improved further to 1.4% from 1.9% last year, while
its loan loss coverage ratio increased to 108.5%. We are taking the opportunity
to tweak our FY13 earnings estimate upwards by 2.1% and introduce our FY14
estimates. With the earnings revision, our fair value for AFG is revised upwards
to RM4.41, which is pegged to 1.7x FY13 P/BV. Maintain BUY.
In line. AFG’s
FY12 net profit surged 17.1% y-o-y and represented 102.4% of our fullyear
forecast, thanks to its
strong Islamic banking income (+10.1% y-o-y) and noninterest
income (+41.8% y-o-y). The marginal headline outperformance was due to stronger
fee investment income, lifted by a lumpy gain arising from the
sale of its available for sale investments (+1,251%), which we think is
not sustainable moving forward. The results would have been slightly below our
estimates after adjusting for this gain.
Despite the relatively strong loans growth of 11.3%, net interest income
merely inched up 0.5% y-o-y due to
further contraction in the net interest
margin to 2.51% compared to 2.69% in the previous year arising from the
increase in Statutory Reserve Requirement during the year.
Cost containment,
strong traction in domestic deposits.
Management’s efforts to rein in overhead costs in FY12 have certainly
paid off, with the overall cost-to-income ratio improving to
47.3% from 48.3% in the previous year. More importantly, the group displayed
promising domestic retail deposit growth (+13.4% y-o-y), with an overall current account savings account
(CASA) growth of 12.4% y-o-y.
Asset quality holding
up well. The group’s net impaired loans ratio improved further to 1.4% from
1.9% a year ago, with the loan loss coverage ratio increasing to
108.5%, which is significantly better than the industry average of 97.5%. The
group’s core Tier 1 equity capital ratio stood at 11.5%, well above regulatory
and Basel III requirements.
Maintain BUY. We are taking the opportunity to impute our earnings upwards by a marginal
2.1% and introduce our FY14 estimates. We are imputing a higher loans growth
forecast of 7.0%, up from 6.0%
previously, but are adjusting our NIM
forecast downwards to account for the expected net interest margin compression.
With that, our fair value for the stock is revised upwards to RM4.41, premised
on a FY13 P/BV of 1.7x (13.9% ROE, 9.5% COE and 4% growth rate).
Source: OSK
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