Period     4Q13/12M13

Actual vs. Expectations   The FY13 PAT of RM538.1m was within the consensus forecast (103%) and that of ours (103%). 

Dividends    No dividend was announced.

Key Result Highlights    The 4Q13 net interest income of RM187.4m was up 5.0% QoQ on a higher 3.9% growth in the gross loans and higher NIM. As at end-Mar13, the total gross loans stood at RM28.2b (+3.9% QoQ; +8.6% YoY), which is below our full-year loan growth forecast of 11%. However, NIM was 5bps higher in the quarter to 1.90% in 4Q13 vs. 1.85% in 3Q13, thanks to shrinking in funding cost.  The total deposits increased 9.4% QoQ (or 1.4% YoY) to RM38.0b, resulting in a lower loan/deposit ratio of 77.1% (vs. 3Q13: 85.3%). 

The 4Q13 non-interest income of RM167.6m saw an increase of 18.6% QoQ (+11.0% YoY) on higher treasury gains.

The gross impaired loans stood at RM579.2m with a gross impaired ratio of 2.1% (vs. 3Q13’s 2.1%). The RM4.2m provisioning was due to the continuous loan growth. The loan loss coverage was at 82.5%. 

Meanwhile, the cost expense was higher with a cost-toincome ratio of 48.4% (vs. 3Q13’s 47.6%) as compared to our estimate of 44%.  

The full year ROE of 13.8% was within our expectation.

Outlook    The momentum of the loan growth is seen as sustainable driven by the bank’s aspiration to grow its SME and mortgage loans (targeting a rate in the high teens). Our loan growth forecast of 11% YoY for AFG is thus highly achievable with the risk being actually on the upside. 

However, the immediate challenge is that continuous competitions could have a negative impact on its NIM. In fact, management has guided for a potential NIM compression of 10bps as the group’s strategy to focus on mortgage and SME loans will see it competing more in these two highly competitive segments, which will contribute to lower asset yields and rising funding cost. 

In addition, AFG’s earnings are likely to be unexciting and we expect another major rise in its fee income to likely happen only in FY14/15 and hence, we expect its earnings growth to be only at the mid-to-high single digit range over the next two years.

Change to Forecasts      We are maintaining our FY14 PAT of RM549.4m.

Rating  Maintain MARKET PERFORM

There could be more of an upside risk rather than downside as the stock could potentially trade up to 1.8x-2.0x PBV (or RM5.20-RM5.80) in view of its potential M&A activities.

Valuation     In line with the current bullish market sentiment,  we raise our target price to RM4.90 (from RM4.00) and assign a higher PBV multiple of 1.7x (from 1.4x BV previously).

Risks    Unexciting earnings prospects (EPS growth of 5.3% for FY14), AFG’s valuation appears rich at the current valuations of 1.7x FY14 BV and 14.0x PER.

We maintain MARKET PERFROM rating given its strong rally over the last one month.  

Source: Kenanga