- We are maintaining BUY on Alliance Financial Group Bhd (AFG), with an unchanged fair value of RM5.40/share. This is based on an unchanged fair P/BV of 1.9x, and ROE of 14.3% FY14F.  

- AFG's annualised net earnings came in at 1.9% below our earlier upgraded forecast, but 2.0% above the consensus of RM522mil for FY13F. The 9MFY13 net earnings made up 73.4% of our forecast and 76.5% of consensus estimate.  

- Annualised loans growth was at 11.7% in 3QFY13, below the company's targeted 14% to 15% and above our forecast of 5.7% for FY13F. This was contributed by a softer SME segment (21.7% of total loans), which recorded a flat growth of 0.8% QoQ in 3QFY13. However, we would view this against a particularly strong 6.4% QoQ rise in the previous 2QFY13, with the December quarter likely also affected by the seasonal year-end holiday. Thus, we remain comfortable with its SME loans growth.

- Fee income did well with an 11.4% QoQ jump to RM46.4mil in 3QFY13, from RM41.6mil in 2QFY13. The increase was contributed mainly by the more sustainable commission income and service fees and charges.  

- Fee income ratio was sustained at 25.3% in 3QFY13 (2QFY13: 25.7%), signalling the company is likely to be able to sustain its fee income ratios at current levels, well above the 21.0% level less than two years ago.  - This means that fee income portion is now gravitating towards a new higher level of RM46mil/quarter, from RM41mil to RM42mil in earlier quarters. The latest quarter affirms AFG's ability to harness higher fee revenue as its SME bank branding improves further. This would be in line with its stated ambition to differentiate itself, via unrivalled customer experience, to be the best SME bank in Malaysia.  

- Group common equity 1 (CET1) ratio remains high at an estimated 11.1%. We foresee rerating catalysts from:- (a) better non-interest income, which would provide further evidence of strong execution on its SME strategy; (b) sustained loans growth; (c) higher ROE.   

Source: AmeSecurities