AFG has made a series of proposals, which would ultimately lead to its wholly-owned subsidiary Alliance Bank Malaysia (ABM) assuming the listing status of AFG by 2QCY17. Based on the provided numbers (mostly illustrative), the corporate exercises could result in a higher ROE and correspondingly better valuations for the Group. However, we are somewhat neutral on this corporate exercise. Pending further details, we continue to maintain MARKET PERFORM on AFG.

A series of proposed corporate exercises. Yesterday, AFG announced to undertake a proposed corporate reorganization exercise which could see its wholly-owned subsidiary Alliance Bank (ABM) taking over the listing status of AFG:-

(i) Proposed AFG subscription of new ordinary shares of RM1.00 each and at Par value in ABM;

(ii) Proposed ABM Bonus Issue;

(iii) Proposed AFG Capital Reduction and Repayment and Proposed AFG Share Issue;

(iv) Proposed Amendments to ABM’s Memorandum and Articles of Association (M&A);

(v) Proposed Amendments to AFG’s Employees Share Scheme; and

(vi) Proposed Transfer of Listing Status.

Ultimately the Proposed Corporate Reorganization will have the shareholders of AFG exchanging their AFG shares for ABM shares on a 1-for-1 basis where their number of shares held and percentage shareholdings in AFG will be same as in ABM. The Corporate Reorganization is expected to be completed by 2QCY17.

Improving efficiency and spearheading growth. ABM currently holds 99% of AFG’s total assets as it is the holding company of AFG’s major operating subsidiaries namely Alliance Investment Bank Berhad and Alliance Islamic Bank Berhad. According to management, the reorganization will: (i) allow delayering of shareholdings in the group as there is no other intended business of AFG besides holding its investment in ABM, (ii) improving cost & efficiency and dispensing the need for two sets of financial reports (AFG and ABM), and (iii) position ABM to spearhead the groups’ future growth and enable ABM to gain direct access to the capital markets to raise funds for its continued growth.

No significant impact. The reorganization is not expected to have any material effect on the earnings of AFG for the financial year ending 31 Mar 2017. ABM’s forward shareholders’ funds are expected to be lower by RM100m (from AFG’s RM4.842b) to RM4.742b based on the proforma accounts. Hence FY18E shareholders’ funds for the new entity is now expected to be lower, thus, our estimated FY18 ROE is expected to be slightly better by 2% to 10.65%. The improved ROE would warrant a higher price-tobook (PB) valuation for the new entity.

Source: Kenanga Research - 22 Sep 2016