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Friday, September 23, 2016

Analysts: Marginal gains from AFG corporate revamp

Friday, 23 September 2016
Analysts: Marginal gains from AFG corporate revamp

They remain ‘neutral’ on the latest development of the group

PETALING JAYA: Alliance Financial Group Bhd’s (AFG) move to reorganise its corporate structure will have “marginal” benefits in terms of cost savings and enhanced financial ratios.

Analysts said they are neutral on the latest development.

AFG on Wednesday announced a plan to transfer its listing status to Alliance Bank Malaysia Bhd.

Maybank Investment Bank Research said yesterday the exercise is largely neutral on its financials while its shareholding structure remains status quo.

“We maintain our earnings forecasts and ‘buy’ call on AFG with an unchanged target price of RM4.60 (2017 calendar year price-to-book value (PBV) of 1.3 times for an return on equity (ROE) of 10.7%),” it said.

AFG had proposed a share-swap exercise in which shares of AFG would be swapped for Alliance Bank’s shares on a one-for-one basis.

This will effectively transfer the listing status of AFG to Alliance Bank and pre-empt the need to comply with the central bank’s requirements.

The research house said the reorganisation is largely neutral to the group’s financials, with some marginal cost savings and improved corporate efficiency, in that there will no longer be the need for AFG to maintain its own board of directors and various other committee members, as well as two sets of financial reports (for the group and for the bank).

“Positively, we estimate that there will also be a 20bps enhancement to Alliance Bank’s common equity Tier 1 (CET1) ratio to 11.9% at the group level and 11.1% at the bank level,” it said.

Meanwhile, CIMB Research also foresees marginal benefits arising from the exercise, through some cost savings and enhancements in capital ratio.

The research firm said that the earnings per share value would remain largely unchanged due to the exercise as it would standardise the share base for both AFG and Alliance Bank, as well as because AFG holds about 99% of its subsidiaries through Alliance Bank.

CIMB Research has reiterated its “hold” call on the shares due to concerns over an upturn in credit costs. The proposed exercise does not alter the “hold” call and the target price has also retained at RM4.

UOB Kay Hian had also expressed a “neutral” take on the corporate move of AFG, as minimal financial implications are expected.

Slight operating cost improvement can be anticipated as compared to the current two full boards of directors (one for AFG and one for Alliance Bank), only one board will be needed post the reorganisation.

Besides that, through the issuance of 96 million new share of Alliance Bank, a marginal 20bps enhancement to CET1 can be expected.

“As AFG does not have any holding company debt and all of its key operating subsidiaries are fully consolidated under Alliance Bank, there will be no rights issue involved nor will there be internal reorganisation of other subsidiaries,” UOB Kay Hian pointed out.

The research house maintained a “hold” call, with a retained target price of RM3.80.

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