- At the recent company briefing, AFG hinted that loans demand for the smaller SME segment (about 21% of total loans book) remained modest in recent times, due to cautious stance adopted by borrowers. These are expected to pick up ahead in 2H, on the back of better ETP-related activities.

- We are neutral on the slower business segment, as this is in line with the softer macroeconomic trend. We expect ongoing cautious stance adopted by SME owners because of currency volatility, perceptions of costlier materials caused by inflation, and slower domestic economic growth.

- Meanwhile, the consumer segment is expected to hold up, which makes up for the lull in the business segment. Auto and share margin financing growth are expected to be robust, with the better spread expected to offset ongoing compression on NIM due to competitive reasons. The share margin financing spreads are expected to offset in particular the run-off in the higher-yielding personal loan segment.

- We are also positive on the treasury operations, which had posted a commendable unrealised gain for longer-term securities available-for-sale, of RM65.2mil in 2QFY14, compared to RM86.9mil in 1QFY14. We still expect a challenging environment for the treasury department, but with ongoing unrealised gain, this provides a good buffer for any volatility ahead.

- We sense there may be two main focus areas ahead:- (a) First is deposit, given the intense competition for deposit. Loan-to-deposit ratio target is kept at 85%; and (b) Secondly, management of asset quality. So far there have been no major signs in its loans portfolio.

- We think that the company did well in terms of recoveries, which boosted loan loss writeback in this quarter. While business segment was slow, this was in line with expectations given the slowing macro trends. Consumer segment has now stepped in nicely to make up for the lull in the business segment, while there is good buffer in the treasuries segment.

- The latest quarter indicates no major asset quality issues, which means that AFG’s platforms remain solid and well in place for growth opportunities. HOLD.

Source: AmeSecurities