Alliance Financial Group's (AFG) FY12 net profit was in line with consensus and our expectations, representing 102.4% of our full-year forecast. This was largely attributable to its robust non-interest income (+41.8% y-o-y) and loans growth (+11.3%) that was in line with the industry. The group's asset quality remains intact as its net impaired loans ratio improved further to 1.4% from 1.9% last year, while its loan loss coverage ratio increased to 108.5%. We are taking the opportunity to tweak our FY13 earnings estimate upwards by 2.1% and introduce our FY14 estimates. With the earnings revision, our fair value for AFG is revised upwards to RM4.41, which is pegged to 1.7x FY13 P/BV. Maintain BUY.
In line. AFG's FY12 net profit surged 17.1% y-o-y and represented 102.4% of our fullyear forecast, thanks to its strong Islamic banking income (+10.1% y-o-y) and noninterest income (+41.8% y-o-y). The marginal headline outperformance was due to stronger fee investment income, lifted by a lumpy gain arising from the sale of its available for sale investments (+1,251%), which we think is not sustainable moving forward. The results would have been slightly below our estimates after adjusting for this gain. Despite the relatively strong loans growth of 11.3%, net interest income merely inched up 0.5% y-o-y due to further contraction in the net interest margin to 2.51% compared to 2.69% in the previous year arising from the increase in Statutory Reserve Requirement during the year.
Cost containment, strong traction in domestic deposits. Management's efforts to rein in overhead costs in FY12 have certainly paid off, with the overall cost-to-income ratio improving to 47.3% from 48.3% in the previous year. More importantly, the group displayed promising domestic retail deposit growth (+13.4% y-o-y), with an overall current account savings account (CASA) growth of 12.4% y-o-y.
Asset quality holding up well. The group's net impaired loans ratio improved further to 1.4% from 1.9% a year ago, with the loan loss coverage ratio increasing to 108.5%, which is significantly better than the industry average of 97.5%. The group's core Tier 1 equity capital ratio stood at 11.5%, well above regulatory and Basel III requirements.
Maintain BUY. We are taking the opportunity to impute our earnings upwards by a marginal 2.1% and introduce our FY14 estimates. We are imputing a higher loans growth forecast of 7.0%, up from 6.0% previously, but are adjusting our NIM forecast downwards to account for the expected net interest margin compression. With that, our fair value for the stock is revised upwards to RM4.41, premised on a FY13 P/BV of 1.7x (13.9% ROE, 9.5% COE and 4% growth rate).