PP 7767/09/2010(025354)

23 August 2010

Malaysia Corporate Highlights

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

R e su l ts N o t e
23 August 2010
MARKET DATELINE

Alliance Financial Group Share Price

Fair Value
:
:
RM3.05
RM3.40
Boosted By Low Impairment Allowance For Loans Recom : Outperform
(Maintained)

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

Net EPS Net Net
FYE PBT Profit EPS Gwth PER BVPS P/Book C.EPS* DPS Div Yld ROE
Mar (RMm) (RMm) (sen) (%) (x) (RM) (x) (sen) (sen) (%) (%)
2010a 408.9 301.4 19.5 30.6 15.0 1.90 1.5 - 6.4 2.2 10.6
2011f 515.8 377.5 24.4 25.2 12.0 2.10 1.4 25.6 6.4 2.2 12.2
2012f 560.9 411.7 26.6 9.1 11.0 2.32 1.3 29.5 6.4 2.2 12.0
2013f 613.2 451.3 29.2 9.6 10.0 2.57 1.1 31.3 6.4 2.2 11.9
Main Market Listing / Non-Trustee Stock / Non-Syariah-Approved Stock By The SC * Consensus Based On IBES

♦ 1QFY11 beats estimates ... AFG’s 1QFY03/11 net profit of RM111m

RHBRI Vs.
Above
Consensus

(+43% qoq, +140% yoy) was ahead of our and consensus estimates,
In Line
making up 28-29.3% of our and consensus full-year forecasts. The key
Below
variance was lower-than-expected allowance for impairment on loans.
Pre-impairment profit, however, was within estimates. Issued Capital (m shares) 1,548.1
♦ … with net profit surging 43% qoq and 140% yoy. QoQ, net profit Market Cap (RMm) 4,721.7
rose 43% on the back of: 1) lower impairment on securities of RM0.6m Daily Trading Vol (m shs) 2.8
vs. 4Q10: RM12m; 2) lower operating expenses (-10% qoq); and 3) 52wk Price Range (RM) 2.29 - 3.18
lower net individual allowance of RM11.9m (4Q10 net SP of RM24m). YoY Major Shareholders: (%)
basis, all line items recorded improvement, leading to the strong growth. Temasek Hldgs 29.1
EPF 15.8
♦ Results highlights. Positive takeaways from the 1Q numbers include: 1)
asset quality largely intact (see below); 2) negligible credit cost (4Q10:
9bps; 1Q10: 13bps); 3) tight rein on overheads resulting in CIR FYE Mar FY11 FY12 FY13
improving to 45.3% (4Q10: 52.3%; 1Q10: 61.4%); and 4) yoy expansion FD EPS chg (%) - - -
of 37bps in unadjusted NIM (stable qoq) due to lower funding cost. On Var to Cons (%) 0.8 (9.7) (15.9)
the flipside, however, loan growth got off to a slow start, up just 0.7%
qoq (+7.9% yoy) as compared to +2.1% qoq and +9.3% yoy in 4Q10. PE Band Chart
AFG’s HP loan book continued to shrink (-8% qoq; -25% yoy) but this
PER = 14x
was more than offset by the growth in loans to SMEs (+8% qoq; +13% PER = 12x
yoy). Annualised growth rate was just 2.7%, below management’s “above PER = 10x

industry” loan growth target. Meanwhile, deposits fell by 1.5% qoq (-4%
yoy) mainly due to a drop in FDs. Consequently AFG’s LD ratio rose
further to 89.6% from 87.4% as at end-Mar ’10. We await further
clarification from management at today’s results briefing.

♦ Impact from adoption of FRS139. Despite the adoption of FRS139,

AFG’s gross impaired loans ratio as at end-Jun ’10 stayed stable at 3.8%
Relative Performance To KLCI
vs. 3.77% as at end-Mar ’10 (based on GP3). Annualised impaired loan
formation in 1Q11 stood at 73bps, an improvement as compared to
104bps and 202bps in 4Q10 and 1Q10 respectively. Opening balances for AFG
individual and collective impairment allowances were RM390m and
RM324m respectively (vs. SP and GP balances of RM439m and RM323m
FBM KLCI
respectively as at end-Mar ’10). Overall, the adoption of FRS139 has
resulted in opening retained earnings being restated upwards by RM36m
or +6% to retained earnings as at 31 Mar 2010. Due to the lower IA, LLC
dropped qoq to 85.6% from 94.4% as at end-4Q10. Core capital ratio at
end-1QFY11 was 11.4% (4Q10: 11.4%; 1Q10: 10.5%).

♦ Dividend. AFG declared a first interim TE DPS of 3.3 sen (1Q10: net DPS
of 1.3 sen). We project a full-year net DPS of 6.4 sen.

♦ Forecasts. Pending AFG’s results briefing later today, we have left our
earnings forecasts unchanged. David Chong, CFA
♦ Investment case. For now, we have left our fair value of RM3.40 (13x (603) 9280 2186
CY11 EPS) and Outperform call unchanged. david.chong@rhb.com.my

Please read important disclosures at the end of this report. Page 1 of 5

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 23 August 2010

Table 2 : Quarterly Results

QoQ YoY
FYE Mar (RMm) 1Q10 4Q10 1Q11 (%) (%) Comments
Net Interest Income 196.7 236.7 224.7 (5) 14 Higher yoy due to continued loan growth of +7.9% yoy
(+ Islamic Banking) mainly driven by loans for purchase of residential
properties, personal use and working capital (see Table 4),
and NIM expansion (+37bps) due to lower funding cost.

Lower qoq mainly due to lower Islamic banking income.

Non-interest Income 32.6 29.0 50.9 75 56 Higher qoq due to:

(+Impairment Write- 1) Lower impairment charge of RM0.6m (4Q10: RM12m);
back/(Loss) On HTM and
Securities) 2) Higher fee income (+23% qoq).

Higher yoy due to lower impairment charge (1Q10:

RM29.2m), partly offset by lower fee income (-22% yoy).
Operating Income 229.3 265.7 275.6 4 20

Less: Overhead (140.9) (138.8) (124.8) (10) (11) QoQ lower mainly due to lower personnel (-7.4% qoq) and
Expenses establishment (-17.3% qoq) costs while yoy drop mainly
due to lower admin (-64.4% yoy) expenses.
Pre-impairment 88.4 126.8 150.8 19 71
Profit

Less: Impairment (26.0) (19.4) (0.5) (97) (98) Lower yoy and qoq generally reflects lower individual
losses on loans, impairment allowance (net) of RM11.9m (vs. SP of
advances and RM24.1m and RM30m for 4Q10 and 1Q10 respectively) and
financing higher recoveries of RM16m (4Q10: RM12.2m; 1Q10:
(+Allowance For RM11m).
Doubtful Sundry
Receivables)
Operating Profit 62.4 107.4 150.3 40 >100

Associates 0.0 0.0 0.0 nm nm

Pretax Profit 62.4 107.4 150.3 40 >100

Less: Tax (16.2) (30.2) (39.8) 32 >100

Eff. Tax Rate (%) 26.0 28.1 26.5
Profit After Tax 46.2 77.2 110.5 43 >100

Minorities 0.0 0.0 0.2 >100 >100

Net Profit 46.2 77.3 110.7 43 >100
Source: Company, RHBRI

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 23 August 2010

Table 3 : Ratio Analysis

FYE Mar 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11
Asset Quality (%)
Gross impaired loans/NPL Ratio 5.23 4.47 4.46 4.11 3.94 3.77 3.80
Net impaired loans/NPL Ratio 2.18 1.80 1.88 2.00 1.90 1.75 2.09
Individual allowance/impaired loans (SP / NPL) 59.6 60.8 58.9 52.4 52.7 54.4 45.8
Collective allowance/net loans (GP / Net Loans) 1.78 1.79 1.78 1.54 1.54 1.54 1.54
Loan Loss Coverage 92.6 99.7 97.7 89.0 91.0 94.4 85.6
Core Capital Ratio 10.3 10.4 10.5 11.2 11.3 11.4 11.4
RWCAR 14.7 14.8 14.9 15.5 15.5 15.7 15.7

Margins (%)
Yields On Earning Assets 4.65 4.18 3.56 3.74 3.64 3.54 3.57
Avg. Cost of Funds 2.45 2.25 1.91 1.83 1.73 1.50 1.53
Interest Spread 2.2 1.9 1.6 1.9 1.9 2.0 2.0
Net Interest Margins (ex-Islamic Inc) 2.37 2.10 1.81 2.07 2.06 2.17 2.18
Adjusted Net Interest Margins (+ Islamic Inc) 3.00 2.64 2.59 2.74 2.94 3.10 2.90

Profitability (%)
ROE 7.14 0.13 6.64 11.03 13.75 10.47 14.50
ROA 0.68 0.01 0.59 1.02 1.29 0.98 1.38
Cost / Income Ratio 58.3 79.4 61.4 82.3 52.6 52.3 45.3
Expenses / Avg. Assets 1.95 2.03 1.79 1.65 1.90 1.75 1.56
Provisions / Avg. Net Loans 0.75 0.75 0.55 (1.66) 0.03 0.38 0.01

Liquidity (%)
Loan Deposit Ratio 80.0 73.2 78.8 87.0 85.7 87.4 89.6
Net Loan Growth (qoq) 3.9 1.3 2.1 3.3 2.1 2.1 1.0
Deposit Growth (qoq) 1.5 10.7 (5.2) (6.2) 3.6 0.2 (1.5)
Source: Company, RHBRI

Table 4 : Gross Loan Book Breakdown

FYE Mar 2Q10 3Q10 3Q10 4Q10 1Q11 qoq (%) yoy (%)
Purchase of securities 253.5 329.9 352.6 352.0 325.3 (7.6) 28.3
Purchase of transport vehicles 1,113.8 1,036.4 966.9 907.6 834.8 (8.0) (25.0)
Purchase of landed properties
Residential 7,953.0 8,089.7 8,264.6 8,408.6 8,492.6 1.0 6.8
Non-residential 2,729.3 2,713.4 2,703.0 2,683.5 2,737.5 2.0 0.3
Purchase of fixed assets 58.2 60.3 59.7 66.5 82.4 23.9 41.6
Personal use 1,383.5 1,611.3 1,871.8 2,007.9 2,015.1 0.4 45.6
Credit Card 658.6 683.9 697.1 685.0 680.0 (0.7) 3.2
Purchase of consumer durables 0.0 0.0 0.0 0.0 0.0 n.a. n.a.
Construction 323.9 321.8 263.0 293.2 248.8 (15.1) (23.2)
Working capital 4,728.2 5,139.4 5,204.9 5,384.6 5,524.1 2.6 16.8
Others 781.5 566.7 588.5 621.1 615.1 (1.0) (21.3)
Total 19,983.7 20,552.8 20,972.1 21,409.9 21,555.7 0.7 7.9
Source: Company, RHBRI

Table 5 : Impaired Loans/NPLs By Sector

FYE Mar Gross Impaired Loans/NPLs (RMm) Gross Impaired Loans /NPL Ratio (%)
Sep 09 Dec 09 Mar 10 Jun 10 Sep 09 Dec 09 Mar 10 Jun 10
Purchase of securities 16.2 16.2 16.4 17.7 4.9 4.6 4.7 5.4
Purchase of transport vehicles 18.1 16.8 14.0 13.6 1.7 1.7 1.5 1.6
Purchase of landed properties
Residential 259.3 255.2 240.2 227.6 3.2 3.1 2.9 2.7
Non-residential 112.6 107.5 96.3 83.3 4.2 4.0 3.6 3.0
Purchase of fixed assets 0.1 0.2 0.2 0.2 0.1 0.3 0.3 0.2
Personal use 51.8 46.1 40.5 41.2 3.2 2.5 2.0 2.0
Credit Card 18.0 15.7 14.2 14.7 2.6 2.3 2.1 2.2
Purchase of consumer durables 0.0 0.0 0.0 0.0 n.a. n.a. n.a. n.a.
Construction 28.6 19.8 14.9 22.1 8.9 7.5 5.1 8.9
Working capital 302.1 304.7 321.6 349.1 5.9 5.9 6.0 6.3
Others 38.2 44.3 48.1 49.5 6.7 7.5 7.7 8.0
Total 844.9 826.5 806.3 818.9 4.11 3.94 3.77 3.80
Source: Company, RHBRI

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Table 6 : Earnings Forecasts Table 7 : 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 impaired loans ratio 3.5 3.3 3.0
Non-interest Income 68.9 277.2 299.3 314.3 Net impaired loans ratio 1.7 1.6 1.5
Operating Income 931.6 1,172.2 1,261.9 1,344.6 Ind. allow / Impaired loans 52.0 52.0 52.0
Collective allow. / 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-impairment RWCAR 14.7 15.1 15.5
Profit 377.0 621.0 683.2 736.9
Margins (%)
Less: Impairment Yields On Earnings Assets 3.59 3.54 3.49
losses on loans 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

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or
be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives
of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or
strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts
any liability for any loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing
investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB
Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity
securities or loans of any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other
services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the 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.

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

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

Industry/Sector Ratings

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

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

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

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended
securities, subject to the duties of confidentiality, will be made available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for the
actions of third parties in this respect.

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