-  We maintain our HOLD rating on Alliance Financial Group Bhd (AFG), with an unchanged fair value of RM5.10/share. Our fair value is based on a 13.4% ROE for FY15F, leading to a fair P/BV of 1.8x.

-  AFG’s net earnings for FY14 were ahead of consensus estimates’ RM556.3mil by 1.3%, while below ours by 4.7%. We consider net earnings to be in line.

-  The group declared a final special dividend of 10.5 sen, which is a positive surprise. Normally AFG does not announce further dividend in the final quarter, as it has historically announced its dividends in the first half of the financial year.

-  To recap, earlier in 1QFY14, AFG declared a first-interim dividend of 7.5 sen, above FY13’s first-interim tax exempt dividend of 6.6 sen. Furthermore, in early December 2013, AFG had announced a second interim dividend of 11.5 sen, on a tax-exempt basis. With the unexpected final quarter dividend of 10.5sen, this brings the total tax-exempt dividends announced for FY14 to 29.5 sen. This is ahead of our estimate of 17.6 sen, and consensus forecast’s 18.3 sen.

-  The company achieved loans growth of 14.1% for FY14, above the industry growth of around 10%. AFG hinted at loans growth of 10%-11% ahead, with relatively slower mortgage loans growth to be offset by its newer auto and share margin financing portfolio. It expects to sustain its SME loans growth momentum (+17% YoY in FY14) given its strong relationship management and efficient platform.

-  Non-interest income has improved given a growth of 16.6% QoQ to RM87.8mil, from RM75.3mil in 3QFY14, on the back of the better investment and trading income line. Investment and trading income has almost doubled with net gain of RM42.6mil in 4QFY14, from RM21.7mil in 3QFY14. We consider the investment and trading income line to have performed above expectations given the generally challenging environment.

-  The company alluded that, given a possible interest rate increase, its asset-liability profile remains well positioned to benefit from a rate hike. At the same time, it does not foresee any new strains on its loan books despite a possible rate hike, as it expects its borrowers to adjust well to a higher interest rate environment. Thus, the company does not foresee significantly higher impaired loans or credit costs ahead. We expect interest to sustain given that AFG is positioned for a rate hike, while its continuing good asset quality provides a strong level of comfort. Maintain HOLD.

Source: AmeSecurities