Journey to Wealth
Alliance Financial - Priced in short-term upside HOLD
- We are downgrading Alliance Financial Group Bhd, (AFG) to HOLD from BUY, with an unchanged fair value of RM4.40/share. This is based on an unchanged FY13F's ROE of 13.2% and unchanged fair P/BV of 1.7x.
- AFG's share price hit a new high recently of RM4.40, surpassing the previous peak of RM4.31 in the past two years.
- The share price is now close to our fair value of RM4.40/share. Given the less than 15% upside to our fair value, we are downgrading our rating to HOLD from BUY.
- The stock is currently trading at a P/BV of 1.6x, which is one standard deviation above the long-term average P/BV mean of 1.2x.
- We believe the share price has rerated ahead of confirmation of the entry of DBS as a major shareholder.
- Recall that on 2 April 2012, AFG had announced that it had received a notice from Duxton Investments Pte Ltd (Duxton Investments) that DBS Bank Ltd (DBS) had obtained the approval of Bank Negara Malaysia (BNM) to commence discussions to acquire Duxton Investments'49% stake in Vertical Theme Sdn Bhd (Vertical Theme).
- Vertical Theme is a private company which holds a strategic 29.06% equity interest in AFG. Vertical Theme has only two major shareholders, with Langkah Bahagia Sdn Bhd (a private vehicle) holding a 51% stake.
- Duxton Investments is a wholly-owned subsidiary of Fullerton Financial Holdings Pte Ltd, which in turn is a wholly-owned subsidiary of Temasek. Accordingly, Temasek's effective interest in AFG stands at 14.2%.
- If DBS is to acquire Duxton Investment's 49% stake in Vertical Theme, it will then end up with an effective 14% stake in AFG. There would thus be a change in majorshareholder from Temasek to DBS.
- The other major shareholder with a larger effective stake at 15% would be Langkah Bahagia.
- We do not expect any issue in terms of the acquisition by DBS. Thus, we expect DBS to end up with at least a 14% stake.
- The announcement on 2 April 2012 was a major positive surprise. However, with the share price having rerated significantly since, we believe the immediate upside potential from the entry of DBS is likely already priced in.
Source: AmeSecurities
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
