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PP 7767/09/2010(025354)

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

New s Upda te
18 June 2010

Alliance Financial Group Share Price

Fair Value
New Group CEO Appointed Recom : Outperform

Table 1 : Investment Statistics (AFG; Code: 2488) Bloomberg: AFG MK

Net EPS Net Net
Mar (RMm) (RMm) (sen) (%) (x) (RM) (x) (sen) (sen) (%) (%)
2010a 408.9 301.4 19.5 30.6 14.4 1.90 1.5 - 6.4 2.3 10.6
2011f 515.8 377.5 24.4 25.2 11.5 2.10 1.3 24.5 6.4 2.3 12.2
2012f 560.9 411.7 26.6 9.1 10.5 2.32 1.2 29.6 6.4 2.3 12.0
2013f 613.2 451.3 29.2 9.6 9.6 2.57 1.1 30.3 6.4 2.3 11.9
Main Market Listing / Non-Trustee Stock / Non-Syariah-Approved Stock By The SC * Consensus Based On IBES
E i
Issued Capital (m shares) 1,548.1
Sng Seow Wah appointed as new group CEO. AFG announced Market Cap (RMm) 4,334.7
yesterday that it had appointed Sng Seow Wah, a Singaporean, as its new Daily Trading Vol (m shs) 2.5
group CEO following approval from BNM. This appointment does not come 52wk Price Range (RM) 2.12 - 3.18
as a surprise as press reports last month had already identified Sng as a Major Shareholders: (%)
replacement for Datuk Bridget Lai. Temasek Hldgs 29.1
EPF 15.8
Background. Sng is an experienced banker with more than 24 years of
experience. He was the Executive Vice President and Head of Enterprise
FYE Mar FY11 FY12 FY13
Banking at OCBC Bank in Singapore and before that, Sng held various
EPS chg (%) - - -
positions with Citibank, Westpac Banking Corporation and Banque
Var to Cons (%) (0.3) (10.2) (3.9)
Nationale De Paris. Prior to his appointment as AFGs group CEO, he was
the Head of Human Resources, Special Projects & Corporate PE Band Chart
Communications at Fullerton Financial Holdings.
PER = 14x

Impact. Despite the absence of a CEO thus far, it has been business as
PER = 12x
PER = 10x
usual for the group as we believe that, under the leadership of the
previous CEO and her team, a strong foundation had been put in place to
execute the groups longer-term growth strategy. Nevertheless, the
appointment of Sng would help address the leadership issue and, we
believe, help take the group to the next level. In addition, we do not think
the appointment would lead to a significant shift in the groups strategy or
focus in the near-mid term. Relative Performance To FBM KLCI

Risks. The risks include: 1) slower-than-expected loan growth; 2)

deterioration in asset quality; 3) changes in market conditions that may AFG

adversely affect investment portfolios and capital market related income;

4) impact from Basel III; and 5) impact from the potential change in
leadership on operations. FBM KLCI

Forecasts. We leave our earnings forecasts unchanged.

Investment case. We continue to like AFG given its niche in the

consumer and SME segments, strong deposit franchise, positive impact
from a rate hike, absence of CLOs provisions and aggressive pre-emptive
provisioning, all of which, we believe, means AFG is poised to record
strong earnings growth ahead. Other positive factors are robust capital
ratios, decent valuations and low foreign shareholding. We maintain our
David Chong, CFA
fair value of RM3.47 (15x CY10 EPS) and Outperform call on the stock. (603) 9280 2186

Please read important disclosures at the end of this report.

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Table 2 : Earnings Forecasts Table 3 : Ratio Analysis & Forecast Assumptions

FYE Mar (RMm) FY10a FY11F FY12F FY13F FYE Mar FY11F FY12F FY13F

Net Interest Income 862.7 895.1 962.6 1,030.3 Asset Quality (%)
(+ Islamic Banking) Gross NPL 3.5 3.3 3.0
Non-interest Income 68.9 277.2 299.3 314.3 Net NPL 1.7 1.6 1.5
Operating Income 931.6 1,172.2 1,261.9 1,344.6 SP / NPL 52.0 52.0 52.0
GP / Net Loans 1.5 1.5 1.5
Less: Overhead Loan Loss Coverage 94.9 98.2 102.1
Expenses (554.6) (551.2) (578.7) (607.7) Core Capital Ratio 10.9 11.4 11.9
Pre-provision RWCAR 14.7 15.1 15.5
Profit 377.0 621.0 683.2 736.9
Margins (%)
Less: Loan Loss Yields On Earnings Assets 3.59 3.54 3.49
Provisions 31.9 (105.2) (122.3) (123.7) Avg. Cost Of Funds 1.80 1.80 1.80
Operating Profit 408.9 515.8 560.9 613.2 Interest Spread 1.79 1.74 1.69
Un-adj NIM (ex-Islamic Inc) 1.96 1.94 1.91
Associates 0.0 0.0 0.0 0.0 Adjusted NIM (+Islamic Inc) 2.83 2.85 2.85
Pretax Profit 408.9 515.8 560.9 613.2
Profitability (%)
Less: Tax (107.4) (135.1) (147.0) (160.7) ROE 12.2 12.0 11.9
Effective Tax Rate 26.3 26.2 26.2 26.2 ROA 1.2 1.2 1.2
(%) Cost / Income Ratio 47.0 45.9 45.2
Profit After Tax 301.5 380.7 413.9 452.5 Expenses / Avg. Assets 1.7 1.7 1.6
Provisions / Avg. Net Loans 0.49 0.52 0.48
Minorities (0.1) (3.2) (2.2) (1.2)
Net Profit 301.4 377.5 411.7 451.3 Liquidity (%)
Source: Company data, RHBRI estimates Loan Deposit Ratio 90.9 94.5 98.2
Net / Gross Loan Growth 9.2 9.1 9.1
Deposit Growth 5.0 5.0 5.0
Source: RHBRI estimates


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The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

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Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or
more over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take
on higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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securities, subject to the duties of confidentiality, will be made available upon request.

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