AmResearch
Alliance Financial Group - New banca agreement with Manulife BUY
- Alliance Financial Group (AFG) announced that its wholly-owned banking subsidiary, Alliance Bank Malaysia Berhad has entered into a bancassurance agreement with Manulife Insurance Berhad (Manulife) on 13 June 2013.
- The Agreement is a 10 year bancassurance relationship for Alliance Bank to sell, market and distribute Life Insurance Products developed by Manulife, to the bank’s customers.
- Pursuant to the agreement, Manulife will pay Alliance Bank a total fee of RM70mil over the 10 year duration of the bancassurance relationship.
- There are no further details on the split of the fee for the various year, but this implies average fee income of RM7mil per year, assuming that fee income is evenly recognised throughout the years.
- We estimate possible earnings upgrade of 1.0% FY14F, assuming that recognition of RM70mil is pro-rated evenly throughout the 10 years.
- While earnings upgrade is minimal, this is positive for AFG, as we estimate fee income ratio may be uplifted to 25.0% for FY14F from our current forecast of 24.5% FY14F.
- In addition, the new bancassurance agreement Manulife is expected to fill the vacuum left by the termination of its previous joint venture with American International Assurance Assurance Bhd (AIA), and adds further breadth to AFG’s product suites.
- To recap, AFG had previously signed a bancassurance agreement with AIA in January 2011 which led to AFG forming a joint venture company called AIA AFG Takaful Bhd. AIA AFG Takaful Bhd offered a range of Takaful savings, protection and investment products. AFG had since sold off its 30% stake in the joint venture company in March 2013 for RM45mil to AIA, due to AIA’s merger with ING.
- 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.
Source: AmeSecurities
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