AFG (2488) - Alliance Financial Group - An upturn in credit cost cycle?
Target RM22.10 (Stock Rating: HOLD)
Alliance’s 9MFY3/15 net profit missed our expectations (69% of our full-year forecasts) as we were over-optimistic about the topline. However, 9M earnings were in line with the market’s estimate, at 73% of consensus. As expected, no dividend was declared in 3Q. The 10-17% cut in FY15-17 projected non-interest income lowers our EPS forecasts and DDM-based target price (COE of 11.5%; LT growth of 4%). Despite strong loan growth, Alliance remains a Hold in our books, as we are concerned about the expected reversal in credit costs and margin compression, which were the dampeners for its 3QFY15 results. We prefer RHB Capital.
8% net profit growth in 9MFY15
Net profit expanded by 7.9% yoy to RM437.5m in 9MFY3/15. The key driver was the swift loan growth, which enabled the group to achieve a 9.9% yoy rise in 9MFY15 net interest income despite a 4bp yoy contraction in net interest margin to 1.85%. On the flipside, earnings growth was dragged down by a 452.5% yoy jump in loan loss provisioning to RM22.1m in 9MFY15, due to higher collective assessment allowance provided for its strong loan growth.
Above-industry loan growth
Despite the slowdown in industry loan growth, Alliance’s loan momentum accelerated from 14.9% yoy in Sep 14 to 16.3% yoy in Dec 14, way above the industry’s 8.7%. The improvement mainly came from working capital loans and credit card receivables while non-residential mortgages and auto loans expanded by a swift 30-40% yoy in Dec 14. The 14.8% yoy rate for residential mortgages in Dec 14 was also ahead of the industry’s 13.1%.
Better asset quality
The gross impaired loan ratio continued to improve from 1.2% in Sep 14 to 1.14% in Dec 14, while loan loss coverage rose from 88.6% to 94.2% in 3QFY15.
Not the pick for the sector
Notwithstanding the sterling loan growth, we do not advise investors to accumulate the stock given our concerns about (1) upturn in credit costs and (2) margin contraction. The fee income growth also softened in 3QFY15.
Source: CIMB Daybreak - 17 February 2015
Target RM22.10 (Stock Rating: HOLD)
Alliance’s 9MFY3/15 net profit missed our expectations (69% of our full-year forecasts) as we were over-optimistic about the topline. However, 9M earnings were in line with the market’s estimate, at 73% of consensus. As expected, no dividend was declared in 3Q. The 10-17% cut in FY15-17 projected non-interest income lowers our EPS forecasts and DDM-based target price (COE of 11.5%; LT growth of 4%). Despite strong loan growth, Alliance remains a Hold in our books, as we are concerned about the expected reversal in credit costs and margin compression, which were the dampeners for its 3QFY15 results. We prefer RHB Capital.
8% net profit growth in 9MFY15
Net profit expanded by 7.9% yoy to RM437.5m in 9MFY3/15. The key driver was the swift loan growth, which enabled the group to achieve a 9.9% yoy rise in 9MFY15 net interest income despite a 4bp yoy contraction in net interest margin to 1.85%. On the flipside, earnings growth was dragged down by a 452.5% yoy jump in loan loss provisioning to RM22.1m in 9MFY15, due to higher collective assessment allowance provided for its strong loan growth.
Above-industry loan growth
Despite the slowdown in industry loan growth, Alliance’s loan momentum accelerated from 14.9% yoy in Sep 14 to 16.3% yoy in Dec 14, way above the industry’s 8.7%. The improvement mainly came from working capital loans and credit card receivables while non-residential mortgages and auto loans expanded by a swift 30-40% yoy in Dec 14. The 14.8% yoy rate for residential mortgages in Dec 14 was also ahead of the industry’s 13.1%.
Better asset quality
The gross impaired loan ratio continued to improve from 1.2% in Sep 14 to 1.14% in Dec 14, while loan loss coverage rose from 88.6% to 94.2% in 3QFY15.
Not the pick for the sector
Notwithstanding the sterling loan growth, we do not advise investors to accumulate the stock given our concerns about (1) upturn in credit costs and (2) margin contraction. The fee income growth also softened in 3QFY15.
Source: CIMB Daybreak - 17 February 2015
