AFG (2488) : Alliance Financial Group - Packed with goodies in 2QFY15
Target RM4.98 (Stock Rating: HOLD)
Alliance’s 1HFY3/15 net profit met our expectations, at 49% of our full-year forecast, but was ahead of consensus (53%). The interim net DPS of 9 sen was also largely in line. The bank staged a strong earnings recovery in 2QFY15, which helped it to achieve a net profit growth of 15.7% in 1HFY15. The roll-over of the valuation to end-2015 lifts our DDM-based target price (COE of 10.6%; LT growth of 4%). Despite the strong 2QFY15 results, Alliance remains a Hold in our book as we are concerned about the expected reversal in credit costs and further pressures on margins in the coming quarters. We prefer Maybank.
Strong showing in 2QFY15 due to…
After a weak 1QFY15, Alliance’s 2QFY15 net profit jumped by 37.4% yoy, mainly catalysed by the (1) swift loan growth, (2) one-off gains of RM21.6m from the sale of land, (3) slight improvement in net interest margin, partly arising from the rate hike in Jul 14, (4) net write-back of RM6.6m in loan loss provisioning, and (5) a 29.1% yoy rise in fee income.
Above-industry loan growth
Alliance’s loan growth eased marginally from 15.2% yoy in Jun 14 to 14.9% yoy in Sep 14, but it was still significantly ahead of the industry’s growth of 9%. The double-digit expansion of property loans was the key driver but working capital loans inched down by 0.1% yoy in Sep 14 vs. a growth of 4.5% yoy in Jun 14.
Lower impaired loan ratio
The gross impaired loan ratio continued to improve from 1.36% in Jun 14 to 1.2% in Sep 14, but the loan loss coverage fell from 90.2% to 88.6%.
Non-recurring positive events in 2QFY15
While we cheer the strong 2QFY15 numbers, we would like to highlight that several positive developments in the quarter are non-recurring, including (1) the rate hike, and (2) the gain of RM21.6m from the sale of land. Furthermore, we expect an upturn in credit costs compared to a net write-back in 2QFY15. For these reasons, we remain cautious on its earnings prospects, due to the potential increase in credit costs and margin contraction and hence, we advise investors not to increase their exposure to the stock.
Source: CIMB Daybreak - 27 November 2014
Target RM4.98 (Stock Rating: HOLD)
Alliance’s 1HFY3/15 net profit met our expectations, at 49% of our full-year forecast, but was ahead of consensus (53%). The interim net DPS of 9 sen was also largely in line. The bank staged a strong earnings recovery in 2QFY15, which helped it to achieve a net profit growth of 15.7% in 1HFY15. The roll-over of the valuation to end-2015 lifts our DDM-based target price (COE of 10.6%; LT growth of 4%). Despite the strong 2QFY15 results, Alliance remains a Hold in our book as we are concerned about the expected reversal in credit costs and further pressures on margins in the coming quarters. We prefer Maybank.
Strong showing in 2QFY15 due to…
After a weak 1QFY15, Alliance’s 2QFY15 net profit jumped by 37.4% yoy, mainly catalysed by the (1) swift loan growth, (2) one-off gains of RM21.6m from the sale of land, (3) slight improvement in net interest margin, partly arising from the rate hike in Jul 14, (4) net write-back of RM6.6m in loan loss provisioning, and (5) a 29.1% yoy rise in fee income.
Above-industry loan growth
Alliance’s loan growth eased marginally from 15.2% yoy in Jun 14 to 14.9% yoy in Sep 14, but it was still significantly ahead of the industry’s growth of 9%. The double-digit expansion of property loans was the key driver but working capital loans inched down by 0.1% yoy in Sep 14 vs. a growth of 4.5% yoy in Jun 14.
Lower impaired loan ratio
The gross impaired loan ratio continued to improve from 1.36% in Jun 14 to 1.2% in Sep 14, but the loan loss coverage fell from 90.2% to 88.6%.
Non-recurring positive events in 2QFY15
While we cheer the strong 2QFY15 numbers, we would like to highlight that several positive developments in the quarter are non-recurring, including (1) the rate hike, and (2) the gain of RM21.6m from the sale of land. Furthermore, we expect an upturn in credit costs compared to a net write-back in 2QFY15. For these reasons, we remain cautious on its earnings prospects, due to the potential increase in credit costs and margin contraction and hence, we advise investors not to increase their exposure to the stock.
Source: CIMB Daybreak - 27 November 2014
