- Alliance Financial Group (AFG)’s share price has appreciated to a new recent high of RM5.36 from below RM5.00 a few days ago. We understand there are no impending corporate announcements at this point.
- AFG’s recent 4QFY13 results which was announced a couple of weeks ago was positive as working capital segment (22.2% of total loans) has surprisingly picked up by 2.8% QoQ in 4QFY13, in contrast to a -4.7% QoQ decline in 3QFY13. The trend was similarly reflected in terms of its loans by holders, whereby the SME segment (21.4% of total loans) registered a significantly higher growth of 2.4% QoQ in 4QFY13 compared to flat 0.8% QoQ rise in 3QFY13.
- More importantly, the fee income portion of the non-interest income was also well-sustained in the recent 4Q. This indicate potential for AFG to extract higher fee income from its SME segment ahead.
- Aside from strong operations, there may be further news on possible acquisition by DBS. Recall that AFG has already announced more than a year ago on 2 April 2012 that DBS Bank Ltd (DBS) has obtained the approval from Bank Negara Malaysia (BNM) to commence discussions to acquire Temasek’s 49% stake in Vertical Theme Sdn Bhd (Vertical Theme).
- To recap, Vertical Theme holds a 29% equity interest in AFG. Vertical Theme has only two major shareholders: Langkah Bahagia Sdn Bhd (a private vehicle) holding a 51% stake, and the balance of 49% by Duxton Investments Pte. Ltd, which is an indirect wholly-owned subsidiary of Temasek.
- The company is maintaining its medium term KPI targets for FY12-FY15: (a) Gross impaired loans better than industry average; (b) fee income ratio of 30%; (c) cost-to-income ratio of 45% to 48%; (d) ROE target of 14% - 16%; (e) pay up to 50% of net earnings in dividend, subject to regulatory approvals and strong capital ratios.
- We maintain BUY on AFG and foresee these re-rating catalysts:- (a) better non-interest income, which would provide further evidence of strong execution on its SME strategy; (b) sustained loans growth; (c) overall higher dividend given strong CET1 ratio of 10.2%; and (d) higher ROE. Despite share price appreciation, dividend yield still looks decent at current levels.
Source: AmeSecurities
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