Results

• Within expectations. 1QFY17 net profit of RM132.5m (qoq: +2%; yoy: +8.6%) came in within expectations, accounting for 24.3-24.5% of our and consensus full-year forecasts.

Deviations

• Broadly in line.

Dividend

• None.

Highlights

• Achieved annualized ROE of 11%, in line with KPI target.

• QoQ… 1QFY17 net profit increased by 2.6% to RM132.5m, driven mainly by a 4bps improvement in NIM (as a result of improved loan mix) and lower overhead expenses, which altogether more than offset a 0.7% decline in loan base, higher provisions, and a slight decline in NOII.

• YoY… 1QFY17 net profit grew by 8.6%, driven mainly by a 3% loan growth and higher NOII.

• Loans and deposits declined by 0.7% qoq and 2.4% qoq respectively, resulting in LDR increasing to 84.9% (from 83.5% in the previous quarter). Against the sector, we note that AFG’s loan and deposit growth lagged behind industry qoq growth rates of 1.1% and 0.4% respectively.

• Asset quality ratios were mixed on qoq basis… with GIL ratio declining to 1.17% (from 1.26% in 4QFY16) and loan loss coverage improving to 83.9% (from 76.9% in 4QFY16), while credit charge increasing to 5bps (from 1bps in 4QFY16), mainly on the back of a reversal in CA write-back last quarter and lower recoveries, which more than offset lower IA.

Risks

• Unexpected jump in impai red loans and lower than expected loan growth. Intense competition from much bigger players.

Forecasts

• Maintained.

Rating

HOLD

• Positives – Strong asset quality and deposit franchise (the latter helps in protecting NIM), strong niche in consumer and SME, potential M&A excitement and robust capital.

• Negatives – Stiff competition from signi ficantly larger players with bigger scale and reach as well as relatively lower liquidity against peers.

Valuation

Maintain HOLD recommendation, with unchanged target price of RM3.89 based on Gordon Growth with ROE of 11% and WACC of 10.2%.

Source: Hong Leong Investment Bank Research - 23 Aug 2016