- We maintain HOLD on Alliance Financial Group Bhd (AFG) with an unchanged fair value of RM5.00/share. This is based on revised ROE of 12.8% (previously 12.9%) for FY16F, leading to an unchanged fair P/BV of 1.6x.

- AFG’s FY15 net earnings trailed our forecast by 6.1%, and consensus estimates’ RM575.2mil by 7.6%. The main difference is due to a one-off accounting adjustment of RM18.4mil for recognition of income on balance transfer for credit cards. Income is now recognised on an amortisation basis, instead of an up-front recognition.

- Looking ahead, the company will now focus on risk adjusted return measurement in terms of its targeted loans growth areas. This is primarily aimed at arresting NIM pressure faced by the industry.

- In line with this strategy, there are four key growth areas identified in terms of profitable areas for loans growth:- (a) SME working capital segment; (b) SME industrial HP segment; (c) retail personal loans; and (d) retail credit card loans. The new areas leverage on AFG’s clear niche in consumer and SME banking.

- The other areas identified for non-interest income growth will primarily be the wealth management segment.

- Overall, we are positive on the company’s shift towards the more profitable segments, although we expect impact from the changes to flow through only in the longer term.

- The 4Q results were positive in terms of strong momentum in SME loans and overall deposit. Asset quality had also improved substantially, with the company hinting that it had not experienced any particular strains in its portfolio.

- We have tweaked our earnings forecasts but given the slower macro environment, we have not made major changes to our earnings projection and fair value. We maintain HOLD.

Source: AmeSecurities Research - 28 May 2015