- We maintain HOLD on Alliance Financial Group Bhd (AFG) with an unchanged fair value of RM5.30/share. Our fair value is based on a 13.8% ROE for FY15F, leading to a fair P/BV of 1.8x.

- AFG’s 2QFY15’s annualised net earnings exceeded our forecasts by 12.8% and consensus estimates’ RM592.4mil by 13.9%. The 6M net earnings made up 52.0% of our forecasts and 52.5% of consensus’ projected full-year net earnings for FY15F.

- There was a one-off gain on disposal of land amounting to RM21.6mil, which is related to recovery of an old legacy debt. However, this is considered as one-off in nature. Stripping this off, net earnings (if annualised) is still 1.9% and 2.9% above ours and consensus estimates.

- Annualised loans growth was strong at 14.0% in 2Q, uplifted by good expansion in the SME and retail segments. In terms of loans by holders, the SME loans segment (19.8% of total loans) continued to post robust annualized growth of 29.8% in 2QFY15. We expect the company to sustain its SME competitiveness given its niche in the smaller and family-based SME business segments.

- NIM expanded by 8bps QoQ, mostly from the re-pricing of assets following the 25bps rate hike in July 2014, placing AFG among the rare few peer banks which enjoyed a QoQ increase in NIM.

- Asset quality had improved significantly due mainly to good recoveries. Gross impaired loans ratio was lowered to 1.2% in 2QFY15 from 1.4% in 1QFY15. Loan loss cover was relatively stable at 88.6% in 2QFY15, compared to 90.2% in 1QFY15.

- The 2Q results reinforce our view of AFG’s good growth momentum in both the consumer and SME segments. AFG also registered good growth in CASA. However, without the one-off items, we think that there is limited scope to upgrade core earnings given the slowing economic environment. We expect interest to sustain on the stock given the rising rate environment as well as its good growth momentum. Maintain HOLD.

Source: AmeSecurities