1QFY10 net profit of RM46m, down 63% yoy on lower net interest margin and additional provisions for CLO, as well as impairment for investment securities. Maintain SELL and fair price of RM2.00, based on 1.05x P/B.
Alliance Financial Group Bhd (AFG) reported 1QFY10 net profit of RM46.2m, down 63% yoy but much higher than RM0.8m in the previous quarter. The results were in line with our expectation. It declared an interim single tier dividend of 1.3sen/share.
FY10 will be another unexiciting year for AFG. Main focus for the management will be managing capital and liquidity, controlling nonperforming loans (NPL) and rationalising operations to improve efficiency as well as be more cost effective.
Another round of additional provisions could be the last time. 1QFY10 could be the final quarter for provisioning for its exposure to collaterised loan obligation (CLO). AFG has a total outstanding exposure of RM250m to CLO, including the high default risk Idaman Capital with a total exposure of RM240m.
Credit growth focusing on consumer. Despite the very stringent credit screening, AFG still managed to report a loan growth of 2% at end-FY09. This is on track to meet our expectation of 8% for FY10, focusing on crossselling higher yielding products to existing customers.
Net interest margin stabilising. NIM fell in 1QFY10 on the sharp 150p cut in OPR since Nov 08, but this is likely to stabilise from 2QFY10 onwards after the fixed deposits are fully repriced. Non-interest income is unexciting as the broking business and investment banking activitites are still slow.
Maintain SELL with a fair price of RM2.00, which implies a target P/B of 1.05x derived from the Gordon Growth Model. We are reviewing our fair price based on PE and P/B valuations given improved market liquidity. More details available after an analyst briefing.
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Thursday, September 10, 2009
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