SME and mortgage loans to drive Alliance’s growth

0

KUCHING: Alliance Financial Group Bhd’s (AFG) momentum in its loan growth is set to remain sustainable, driven by the group’s aim to grow its small and medium enterprises (SME) and mortgage loans.

AFG recently announced a net profit of RM266.5 million for the first half of the financial year 2013 (1HFY13), an increase of 4.8 per cent year-on-year (y-o-y).

According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research) in a report, the improvement in net profit for 1HFY13 was mainly driven by its higher net interest income of RM190.7 million which grew 9.7 per cent quarter-on-quarter, supported by a three per cent growth in gross loans and a higher leverage with an increased loan and deposit ratio.

“As at end September 2012, the total gross loans stood at RM26.6 billion, increasing 3.7 per cent quarter-on-quarter (q-o-q) and 13.2 per cent y-o-y,” the research firm said.

MIDF Amanah Investment Bank Bhd (MIDF Research), in its report also noted that AFG’s loans granted to SME expanded by 17.5 per cent y-o-y to RM5.9 billion while loans for purchase of residential properties grew at a higher rate of 17.6 per cent y-o-y in the second quarter of the financial year 2013 (2QFY13) to RM10.6 billion.

“Likewise, loans for purchase of non residential properties grew 24.1 per cent y-o-y to RM3.6 billion,” the research firm added.

However, Kenanga Research noted that AFG strategy to focus on mortgage and SME loans would see it competing more in these two highly competitive segments, which would contribute a rise in funding cost and lower asset yields.

Remaining optimistic on AFG’s expected earnings growth, Kenanga Research pegged the group’s target price at RM4 per share based on 1.4 times financial year 2014 earnings (FY12E) book value of RM2.89 while MIDF Research, neutral on the group’s growth, pegged the target price at RM4.20 per share.