- At our recent company visit, AFG indicated that there is likely to be some pick up in SME loans growth in 2H, although corporate and ETP related loans remains slow. Trade finance loans have been somewhat slow as exports has been affected in recent months, but there are signs of a stronger pipeline for the SME loans ahead. The company has also experienced strong growth in mortgage loans in recent months of April-May 2013. The company is maintaining overall loans growth target at 13% for FY13F.

- The company is also moving into higher yielding products such as personal loans. However, AFG is not only looking at normal bread-and-butter products, but at more innovative higher-end products such as its latest launch of solar panel financing for home borrowers. AFG’s personal financing scheme for solar panel guarantees long-term cash flow with potential returns via Feed-in Tariff (FiT) mechanism. The FiT mechanism allows electricity produced from solar panel to be sold to power utilities at a fixed premium price for a specific duration. While other banks are also moving into this, we understand that AFG is the first to launch the product and has first-mover advantage. The loan is priced at BLR + 1%.

- As for the company’s new bancassurance agreement with Manulife Insurance Berhad (Manulife) on 13 June 2013, we understand that instead of recognising the total fee of RM70mil, AFG will be able to recognise about RM30mil of the RM70mil in the first year, albeit pro-rated over four quarters. This is better than our earlier estimate, where we had estimated that the RM70mil will be recognised evenly over the 10-year period of the agreement.

- Credit costs is expected to still be low at less than 20bps for FY14F. So far the company has not seen any major worrying signs in terms of cash flow behaviour of its borrowers or other parts of its asset quality trend. We understand the company has already realised its trading securities portfolio at strong gains earlier. We believe the company views the current market volatility as an excellent opportunity to rebuild its trading book.

- The five key new positive takeaways from our visits are:- (a) a pick-up in SME loans; (b) AFG’s ability to move into more innovative higher-yielding loans; (c) better fee income from Manulife bancassurance; (d) stable credit costs; and (e) excellent securities position. We continue to like AFG and maintain BUY.

Source: AmeSecurities