- We are maintaining our HOLD rating on Alliance Financial Group Bhd (AFG), with an unchanged fair value of RM4.40/share. This is based on FY13F's ROE of 13.2% and consequently, a fair P/BV of 1.7x.
- AFG's annualised 2Q earnings was 8.1% above our forecast and 6.1% above consensus' RM518mil FY13F.
The 1H net earnings made up 52.3% of our forecast and 51.3% of consensus estimate for FY13F. The better-thanexpected earnings stemmed largely from a write-back in loan loss provisions, aided by strong recoveries.
- Annualised gross loans growth remained healthy at 13.1% in 2QFY13. This is in line with company's targeted 14% to 15%, but above our forecast of 5.7% for FY13F.
We estimate NIM improvement of 14bps QoQ.
- Non-interest income was boosted by a forex gain in this quarter, which helped to offset a more normalised gain in its securities portfolio.
- Fee income ratio was sustained at 25.7% in 2QFY13 (1QFY13: 25.8%), with the company on track to meet its long-term target of 30%.
- Gross impaired loans improved with a 1.9% QoQ reduction in 2QFY13 (1QFY13: -2.9% QoQ). Gross impaired loans ratio was slightly better at 2.3% compared with 2.4% in 1QFY13.
- Loan loss cover was relatively unchanged at 86.4% vs. 86.6% in 1QFY13. As mentioned, there was a positive write-back in loan loss provision in this quarter at RM7.1mil.
- With a write-back as well in the previous 1Q, this means that the total loan loss provision was a write-back of RM15.8mil in 1HFY13. Thus, there was no credit cost charge-off in these two quarters. Earlier, the company had indicated a targeted credit cost of circa 20bps for FY13F.
- AFG's topline growth remained healthy, but the main surprise in this quarter's net earnings was still the positive write-back in loan loss provision.
- We foresee less room to revise earnings upwards, given that loan loss provision is likely to normalise ahead. Maintain HOLD.