Journey to Wealth

Alliance Financial Group - Within Expectations

kiasutrader
Publish date: Wed, 21 Nov 2012, 10:33 AM

AFG's  net  profit  was  in  line  with  consensus  and  our  expectations,  representing48%-50% of the respective full-year forecasts. Core net profit increased by 1.8% y-o-y,  after  excluding  the  gain  in  the  disposal  of  PPE  and  taking  into  account  the  slightly  higher  restated  1HFY12  net  profit,  reflecting  changes  in  loan  loss provisioning post-MFRS139. Gross loans growth remained aggressive at 13.2% y-o-y, spurred by purchases of securities and property loans. The loans-to-deposit  ratio remained healthy at 82.8%, while gross NPL ratio improved to 2.3%. Maintain  BUY and FV at RM4.68.

In  line.  AFG's 1HFY13  core net  profit  represented  about 48.1%  and  49.7%  of  our  and  consensus'  full-year  forecasts  respectively.  Our  YTD  core  net  profit  growth  forecast  of  1.8%  excludes  the  one-off  gain  on  disposal  of  property,  plant  and  equipment  (PPE)  amounting to RM7.4m, compared against a restated 1HFY12 net profit of RM341m post-MFRS-139. Without the restatement and including the exceptional item, AFG's YTD net  profit growth would stand at 6.2%. Main drivers to net profit growth were: i) net interest  income, which grew 9.7% q-o-q on the back of the increase in loans base to RM26.6bn,  and ii) the positive write-back of loan loss provisions from better recovery of bad debts.

Costs  display  signs  of  normalization.  Overhead  expenses  (+9.8%  y-o-y)  remained  high,  due  to  investments  in  labour  and  technology.  We  noticed  an  improvement  in  the  cost-to-income  (CIR)  ratio  from  50.5%  in  1QFY13  to  45.5%,  bringing  the  YTD  CIR  to  47.9%  which  is  slightly  higher  than  the  46.3%  in  1HFY12.  However,  this  was  offset  by  the loss-making investment banking division, which reported a segmental pre-tax loss of  RM5.4m.

Loans  growth  still strong.  Overall loans growth  was  strong  at  13.2%  y-o-y, driven  by  securities  (+96.0%  y-o-y),  residential  mortgages  (+17.6%  y-o-y),  non-residential  loans  (+24.1% y-o-y) and business loans for other purposes (+31.9% y-o-y). Nearly 90% of the  loans are of variable rates.

Slower  deposit  growth.  Loans  growth  outpaced  customer  deposits  growth  at  mere  5.7%  y-o-y.  In  absolute  terms,  customer  deposits  shrunk  slightly  by  RM66k.  This  resulted  in  the  loans-to-deposit  ratio  inching  up  slightly  to  82.8%,  in  line  with  the
management's guidance of 85% for more effective asset liability management. 
 
No foreseeable issues in asset quality. Gross impaired loans ratio improved to 2.3%  from  2.4%  q-o-q.  The  credit  charge  in  relation  to  collective  assessments  over  gross  loans was slightly reduced to 1.38%, also in line with the management's forecasts.
Source: OSK
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