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Friday, May 27, 2016

Alliance Financial Group - FY16 results in line

Alliance Financial Group - FY16 results in line

Author: kltrader   |   Publish date: Fri, 27 May 2016, 12:12 PM 

SME portfolio still growing

AFG’s FY16 results were within expectations and our forecasts are maintained. The SME loan book grew at a pace of about 20% YoY and management hopes to maintain this pace into FY17. We remain positive on its niche in this segment and maintain our BUY call with an unchanged TP of MYR4.60 (CY17 PBV of 1.3x for an ROE of 10.7%).

No surprises

AFG’s 4QFY16 core net profit of MYR130m (16% YoY, -4% QoQ) took its full year net profit to MYR522m (-2% YoY), which was within our/consensus’ forecasts. Positively, FY16 NIM was stable YoY and though loan growth was a moderate 4% YoY, this was due to the deliberate de-emphasis of less profitable loan segments. The SME portfolio expanded at a robust pace of 20% YoY. Operating expenses would have expanded at a slower pace if not for several one-off costs. AFG’s gross impaired loans (GIL) ratio rose to 1.3% from 1.0% end-Mar 2015, but credit costs remained benign at 13bps net in FY16 while the group’s SME GIL ratio remains low at 1.0%. Loan loss coverage at 107% is comfortable.

Guidance into FY17

Management guides for high single digit loan growth in FY17 led by still robust SME loan demand and a pick-up in areas such as corporate lending. NIMs are expected to be stable, while operating expense growth should taper in the absence of the one-offs. Credit costs are expected to normalize higher to about 25-30bps at the gross level.

Dividend payout ratio 43%

Management has proposed a final DPS of 6.5 sen, taking the full year DPS to 14.5sen, this being a payout ratio of 43%. This is marginally lower than the bank’s guided policy of 45-60% but a more realistic payout moving forward would be about 45-50%. We have assumed 45% in our forecasts.
Source: Maybank Research - 27 May 2016

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