In a filing to the Bursa Malaysia, AFG announced that its net profit for the quarter narrowed by 4.4% in contrast to RM135.60mil in the same quarter of the previous financial year. This was despite a moderate 4.8% increase in revenue year-on-year (y-o-y) to RM378.64mil in Q3
KUALA LUMPUR: Alliance Financial Group Bhd’s (AFG) third quarter ended Dec 31, 2016 results came in within Maybank Investment Bank Research’s expectations.
AFG’s net profit of RM130mil in 3QFY17 took 9MFY17 earnings to RM395mil.
“This was within expectations at 74% of our full-year forecast and consensus respectively,” Maybank said.
It noted that 3QFY17 operating profit expanded at a faster rate of 9.7% year-on-year, led by a sizeable nine basis points (bps) quarter-on-quarter net interest margin (NIM) expansion and positive JAWS.
“Credit costs, however, moved higher to 33 bps in 3QFY17 from 17 bps in 2QFY17 on higher impaired loans in housing.
“The group’s asset quality nevertheless remains impeccable with a GIL ratio of 1% and a comfortable LLC of 137% including regulatory reserves,” Maybank said.
It expects AFG to incur higher credit costs and expenses ahead.
“Guidance moving forward is that credit cost is likely to normalise higher while operating expenses are likely to grow at a faster pace, as management plans to invest about RM50mil in new value propositions that will extend its product offering in the SME/retail space,” the research house said.
While higher investment costs are likely to contribute to flat earnings in FY18, Maybank viewed these investments as a necessary step towards extending the group’s overall value proposition and reach to the SME/retail customer segments.
“We expect FY18 ROE to hold up above 10% and for its strong fundamentals and niche in the SME segment, we continue to rate AFG a ‘buy’ with an unchanged target price of RM4.50 (CY17 PBV of 1.3x),” Maybank said, adding that it trimmed AFG’s FY18/FY19 earnings by 3%/4% respectively.
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