News

• AFG proposed a corporate reorganization exercise, which will see its banking unit, Alliance Bank Malaysia Bhd (ABMB) taking over its listing status.

• Under the exercise, existing shareholders of AFG will exchange AFG shares for ABMB’s shares (on the basis of 1- for-1). The number of shares and % of shareholding will remain the same post exercise.

• The proposed exercise is expected to complete by 2Q 2017.

Financial impact

• We are positive on the latest development, as the proposed exercise will: (1) improve cost and corporate efficiency by eliminating the need for AFG to have a full board of directors and committees formed by the board members; (2) simplify financial reporting process; and (3) enhance brand recognition for ABMB.

Risks

• Unexpected jump in impaired loans;

• Lower than expected loan growth; and

• Intensified 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 significantly 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 - 22 Sep 2016