AFG gets Joel Kornreich as new group chief executive officer

TA Securities
(Dec 15, RM4.72)
Maintain “sell” with unchanged target price of RM4.35. Last Friday, Alliance Financial Group Bhd (AFG) announced the appointment of Joel Kornreich as its group chief executive Officer (CEO). His appointment will take effect on Jan 1, 2015. According to the press release, Kornreich has over 23 years of experience in the financial services industry. Before joining Alliance Bank, he was with Citigroup for 20 years in various roles around the world.

We are excited about this new appointment for AFG. We believe the new CEO can revive AFG’s consumer banking operations and imbue the bank with the wealth of his global experience.  Kornreich is reportedly well-known for his successful management of consumer banking businesses, built around superior service and innovative solutions.

Operationally, we believe AFG continues to lag its peers in the consumer banking space — reporting decreases in the credit card and personal loan segments in 2013 before accelerating only in 2014.  Its mortgage portfolio remained buoyant with growth of 15% to 20% year-on-year (y-o-y). While still eyeing double-digit loan growth, momentum is expected to slow down in the coming quarters.  Housing loans are expected to come off to 11% due to the impact of new regulations to control household debt. The HP portfolio has also been recording average growths of close to 50% y-o-y since 2013.

Its consumer market share is still shy of 3%. AFG accounts for 2.7% of the entire loan market in Malaysia. — TA Securities, Dec 15

This article first appeared in The Edge Financial Daily, on December 16, 2014.

KLCI snaps four-day winning streak, dips at mid-day break

KUALA LUMPUR (APRIL 4): The FBM KLCI snapped its four –day winning streak and retreated at the mid-day break on Wednesday, in line with the generally weaker sentiment at key regional markets following the overnight dip at Wall Street.

Asian shares fell on Wednesday after the minutes from the U.S. Federal Reserve's March meeting suggested the bank was less inclined to take further stimulus measures, leaving investors looking for more clues to the global growth outlook, according to Reuters

Fed policymakers remained focused on a still elevated jobless rate while noting signs of slightly stronger growth, but the minutes suggested the appetite for further quantitative easing, so-called QE3 has waned significantly in light of an improving U.S. economy, it said.

At the mid-day break, the FBM KLCI was down 5.78 points to 1,600.85, weighed by losses at select blue chips.

Market breadth turned negative with losers leading gainers by 369 to 199, while 315 counters traded unchanged. Volume was 571.84 million shares valued at RM399.87 million.

The ringgit weakend 0.45% to 3.0613 versus the US dollar; crude palm oil futures for the third month delivery rose RM31 per tonne to RM3,530, crude oil shed 32 cents per barrel to US$103.69 whiel gold fell US$1.82 an ounce to US$1,644.30.

At the regional markets, Japan's Nikkei share average abruptly broke below 10,000 to hit a four-week low on Wednesday, after stop-losses were triggered on index futures, raising concerns that Tokyo's strong equities rally so far this year was coming to a halt.

The Nikkei 225 fell 1.59% to 9,890.65, Hong Kong’s Hang Seng index lost 1.31% to 20,790.90, Taiwan’s Taiex and South Korea’s Kospi fell 1.3% each respectively to 7,760.85 and 2,022.54 respectively, Singapore’s Straits Times Index shed 0.38% to 3,003.16 while the Shangai Composite Index edged up 0.47% to 2,262.79 .

BIMB Securities Research in a note Wednesday said that traders I the US resorted to profit on Tuesday taking amid signs that additional stimulus were diminishing from the Feds latest signal.

As such, the Dow Jones Industrial Average dipped 65 points to just below the 13,200 level.

We find this odd as we interpret this as positive and that the US economy is on auto pilot without the requirement of more financial steroids.

Regionally, Asian markets were slightly higher across the board except for Taiwan being hit hard from rumours that capital gains tax may be imposed on stock trades.

Meanwhile, the FBM KLCI continued with its uptrend with another record high via another 2.9 point gain to close at almost 1,607.

Nonetheless, we noticed that investors are becoming wary of the local bourse’s recent uptrend and believe a correction would emerge anytime soon.

“Foreign funds had again flowed into the market with another net positive of RM203 million yesterday.”

“Despite the foreign buying, we reckon the index may see some retracement today albeit marginally,” it said.

On Bursa Malaysia, Shell was the top loser in the morning session and fell 14 sen to RM10.14, PPB lost 12 sen to RM16.58, Litrak, Carlsberg and AFG fell 10 sen each to RM3.94, RM10.70 and RM3.86 respectively, Sop and Amway lost nine sen each to RM6.85 and RM9.80, Inno down eight sen to RM1.42, while MMHE and RHB Capital fell seven sen each to RM3.39 and RM7.70.

Among the gainers, Milux added 15 sen to RM1.40, Tradewinds and malPac up 10 sen each to RM9.64 and RM1.59, Tradewinds PLANTATION []s seven sen to RN4.92, Ewein and MBM Resources up six sen each to 84 sen and RM4.8, whiel Quality Concrete, Fiamma and NSOP added five sen each to RM1.29, RM1.15 and RM6.15 respectively.



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Alliance Financial up 1.3% on DBS’ entry updates

KUALA LUMPUR (April 3) : Shares of ALLIANCE FINANCIAL GROUP BHD [] (AFG) climbed as much as 1.3% on Tuesday morning following updates that Singapore-based DBS Bank Ltd plans to acquire state investment arm Temasek’s 14.2% stake in AFG. At 11.13am, AFG rose two sen to RM3.98 after reaching an intraday high of RM4.01.

In a note, RHB Research Institute Sdn Bhd said updates on DBS’ entry in AFG could generate interest in AFG shares.

This has prompted RHB to raise its target price for AFG by 10% from RM3.85 to RM4.25 and its recommendation for the stock from “underperform” to “market perform”.

“We believe there is a good chance of DBS acquiring Langkah Bahagia’s portion to raise its effective stake in AFG to more meaningful levels. DBS’ entry may also revive market talks about a potential M&A exercise with Hwang-DBS,” RHB said.



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DBS to acquire major stake in Alliance Financial

KUALA LUMPUR (April 2 ) : Singapore-based DBS Bank Ltd plans to acquire state investment arm Temasek’s 14.2% stake in Malaysia’s ALLIANCE FINANCIAL GROUP BHD [] (AFG).

In a statement to Bursa Malaysia on Monday, AFG said it has received notice from Temasek’s unit Duxton Investments Pte Ltd that DBS has obtained approval from Bank Negara Malaysia to start negotiations on the planned acquisition.

According to AFG, DBS intends to acquire Duxton’s 49% stake in Vertical Theme Sdn Bhd which, in turn, owns 29.06% in AFG. Langkah Bahagia Sdn. Bhd owns the balance 51% in Vertical Theme.

“Accordingly, Temasek’s effective interest in AFG stands at 14.2%. The proposed transaction if successfully negotiated and completed, is not envisaged to trigger a takeover offer for AFG,” the Malaysian financial services entity said.

AFG shares rose 13 sen to RM4.02 at 11.05am. At that price, Temasek’s 14.2% stake comprising some 220 million shares is worth some RM884 million.



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FBM KLCI up on China economic data

KUALA LUMPUR (April 2 ) : Malaysian stocks opened in the red on Monday morning before rebounding to positive territory in tandem with gains across Asian markets. Regional stocks had found support from better manufacturing updates in China over the weekend.

Analysts said Malaysia’s FBM KLCI is showing positive technical dynamics, hence, potential upside for the 30-stock index this week. But they also warned of profit-taking activities which could stifle gains in the equities gauge.

“However, given the weak follow through buying momentum on the broader market, selling on strength may increase to limit upside potential, with the two-tier market to persist as lower liners stay in profit-taking congestion while blue chips could likely dip on profit-taking post first-quarter window-dressing,” TA Securities Holdings Bhd wrote in a note.

At 9.28am, the FBM KLCI was up 0.99 point to 1,597.32. Some 195 million shares worth RM78 million changed hands, resulting in 150 gainers and 104 declining stocks while 153 entities were unchanged.

Top gainers DUTCH LADY MILK INDUSTRIES BHD [] rose 14 sen to RM34.40 followed by ALLIANCE FINANCIAL GROUP BHD [] which was up 13 sen to RM4.02.

Decliners include COCOALAND HOLDINGS BHD [] which fell 25 sen to RM2.05 while BRIGHT PACKAGING INDUSTRY BHD [] was down 14.5 sen to 61 sen.

Most active was INGENUITY SOLUTIONS BHD [] which added 2.5 sen to 13 sen with some 35 million shares done.

Across Asia, Japan’s Nikkei 225 rose 0.85% to 10,169.2 points, Australia’s S&P / ASX 200 climbed 0.71% to 4,366.1, while South Korea’s Kospi was up 0.35% to 2,020.99.

China’s Purchasing Managers' Index, a barometer of the country’s manufacturing activity, had risen to 53.1 in March this year, the highest in about a year, according to the National Bureau of Statistics.



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CIMB Equities Research has technical buy on AFG at RM3.88

KUALA LUMPUR (March 29): CIMB Equities Research has a technical buy on Alliance Financial Group at RM3.88 at which it is trading at a FY13P/E of 11.4 times and price-to-book value of 1.6 times.

It said on Thursday that the rally from its September 2011 low may be coming to an end soon after one more spike to new highs. The current sideways movement is forming a triangle, which supports the view that another new leg up could take place soon.

“Indicators are flat but holding above their respective support levels. A turn up in prices should be followed by these indicators.

“A breakout above RM3.89 on rising volume could see prices shoot towards RM3.97 or even the RM4.05-RM4.10 levels. Using a tight stop of RM3.79 or below, one can go long now or on weakness,” it said.



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Stocks to watch: AFG, Maybank, Tradewinds Plant, KrisAssets

KUALA LUMPUR (Feb 22): With the corporate results season for the October-December in full swing until Feb 29, they will provide the leads for investors.

So far the banks and PLANTATION []s have been reporting firm set of earnings, based on the recent results, though there had been some writebacks.

Among the stocks to watch are ALLIANCE FINANCIAL GROUP BHD [] (AFG), MALAYAN BANKING BHD [], Tradewinds Plantations Bhd and TH PLANTATIONS BHD [].

Also in focus could be QL RESOURCES BHD [], KRISASSETS HOLDINGS BHD [], Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE), Malaysia Airports Holdings Bhd (MAHB), TEBRAU TEGUH BHD [] and ENG TEKNOLOGI HOLDINGS BHD [].

AFG posted net profit of RM121.29 million in the third quarter ended Dec 31, 2011, up 9% from the RM111.26 million, underpinned by growth in interest income due to the expansion in loans.

Its revenue increased by 9.2% to RM311.43 million from RM284.98 million. Earnings per share were 7.90 sen compared with 7.30 sen.

AFG said for the nine months ended Dec 31, 2011, the earnings rose 14.6% to RM371.80 million from RM324.27 million while it recorded a 9% increase in revenue of RM935.80 million from RM858.18 million.

Maybank has proposed to establish a subordinated programme of up to RM7 billion in nominal value. The net proceeds from the issuance of the subordinated notes will be utilised to fund Maybank’s working capital, general banking and other corporate purposes.

Tradewinds Plantations’ earnings increased 17.5% to RM97.75 million in the fourth quarter ended Dec 31, 2011 from RM83.33 million a year ago, boosted by an increase in its palm products production.

Its revenue soared 174% to RM804.23 million from RM293.45 million.

For the year ended Dec 31, 2011, its net profit increased 79.9% to RM335.46 million from RM186.40 million. Revenue rose 86.8% to RM1.70 billion from RM909.13 million.

TH Plantations recorded a 11.3% fall in profits to RM37.71 million in the fourth quarter ended Dec 31, 2011 from RM42.52 million a year ago, due to maintenance carried out during the quarter.

Its revenue increased by 1.99% to RM130.09 million from RM128.53 million. It proposed dividend per share of 12.50 sen.

For the year ended Dec 31, 2011, net profit increased 39.5% to RM124.83 million from RM89.48 million. Revenue rose 18.8% to RM434.86 million to RM365.97 million.

QL Resources' net profit increased by 3.8% to RM34.42 million in the fourth quarter ended Dec 31, 2011 from RM33.14 million a year ago, due to increased sales in its marine product manufacturing arm, palm oil activities and livestock farming. Its revenue increased 10.6% to RM498.96 million from RM450.95 million a year ago.

KrisAssets said the market value of its two malls -- Mid Valley Megamall and The Gardens Mall in Kuala Lumpur – have been revalued at RM3.290 billion as at Dec 31, 2011. It said this was RM470 million above the valuation as at Sept 30 of RM2.82 billion.

MMHE’s earnings fell 65.4% to RM46.35 million in the third quarter ended Dec 31, 2011 from RM134.15 million a year ago. Its revenue declined 45.6% to RM716.15 million from RM1.316 billion a year ago.

For the nine months, its earnings fell 36.1% to RM205.60 million from RM322.11 million in the previous corresponding period. Its revenue declined 39.1% to RM2.137 billion from RM3.512 billion.

MAHB’s earnings were just up 0.8% to RM122.88 million in the fourth quarter ended Dec 31, 2011 from RM121.91 million a year ago. Its revenue increased by 2% to RM837.38 million from RM820.60 million.

For the financial year ended Dec 31, 2011, its earnings rose 26.6% to RM401.11 million from RM316.78 million. Its revenue increased 11.6% to RM2.754 billion from RM2.468 billion.

Tebrau Teguh reported net losses of RM1.13 million for the fourth quarter ended Dec 31, 2011 due to higher operating expenses. It was also in the red with net loss of RM212,000 a year ago.

For FY11, it was still profitable, with net profit of RM2.58 million, down by 29% from RM3.63 million in FY10. Revenue fell 37.3% to RM113.41 million from RM180.97 million.

Eng Teknologi was in the red for the fourth quarter ended Dec 31, 2011 and for the financial year with net losses of RM51.81 million, and RM42.90 million. The manufacturer of components for hard disk drives said it wasimpacted by the severe floods in Thailand last year.



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AFG 3Q net profit up 9% to RM121.29m, 9-month profit RM371.8m

KUALA LUMPUR (Feb 21): ALLIANCE FINANCIAL GROUP BHD [] (AFG) posted net profit of RM121.29 million in the third quarter ended Dec 31, 2011, up 9% from the RM111.26 million, underpinned by growth in interest income due to the expansion in loans.

It said on Tuesday its revenue increased by 9.2% to RM311.43 million from RM284.98 million. Earnings per share were 7.90 sen compared with 7.30 sen.

AFG said for the nine months ended Dec 31, 2011, the earnings rose 14.6% to RM371.80 million from RM324.27 million while it recorded a 9% increase in revenue of RM935.80 million from RM858.18 million.

“For the nine months ended Dec 31, 2011, the group recorded profit before taxation of RM499.5 million, an increase of 13.8% compared to the corresponding period last year. The group registered a 11.0% growth in interest income due to the 11.5% expansion in loans,” said AFG.

Gross loan/financing registered year-on-year growth of 11.5%, driven mainly by the expansion in housing loans and SME lending.

Meanwhile, customers’ deposits grew 9.1% year-on-year with loan-to-deposit ratio at 78.9% as at December 2011, as compared with 77.2% a year ago.

AFG said as at Dec 31, 2011, the current and savings account (CASA) accounted for 35.6% of the group’s customer deposits.



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InsiderAsia’s model portfolio - 468

Asian stocks traded broadly higher last week, buoyed by the sustained rally in US markets. US stocks continued with their steady climb since the start of the new year, gaining slowly but surely. The Dow Jones Industrial Average closed at its highest level since mid-2008 last Thursday (at the end of the Asian trading week) and is now just about 10% off its all-time high.

So far this year, global equities have certainly performed far better than most had initially expected. Investors started off with great caution and higher than average holdings in cash. But it appears they are slowly being lured back into the fray.

Thus far, improvement to the underlying US economy has been the strongest confidence booster. Even though growth is still tepid by most measures, there is growing evidence that the economy is gaining traction over the past few months.

One of the key drivers was the slow but steady strengthening in the job market. The US economy added 243,000 jobs in January, the most since mid-2010, while unemployment dipped to a three-year low of 8.3%. Improved employment prospects are expected to underpin consumer spending, the primary growth driver for the world’s largest economy.

Equally important, US corporate earnings are still growing, which in turn are driving stock prices higher while keeping valuations modest. Company balance sheets are strong, many are flush with cash, and operations lean following rounds of cost saving exercises implemented since the recession.

The improving outlook for the US has so far outweighed lingering concerns in Europe. Indeed, it appears that some investors may have been persuaded that even the worst-case scenario of a Greece exit from the eurozone will not be as disastrous as initially feared, and that measures such as the fiscal compact, establishment of the permanent rescue fund ahead of schedule and unlimited, long-term European Central Bank refinancing operations for banks may have built a sufficient firewall around the crisis.



In short, even though it may still be too early to say that market turbulence is a thing of the past, investor confidence has undoubtedly gained ground over the last few weeks. A steadier global market will be positive for the local bourse, and in particular, higher risks but more attractively valued medium and smaller capitalised stocks.

Interest in lower liner stocks too has been quite robust of late. Trading volume on the local bourse surged to a record 4.39 billion shares last Wednesday, with the bulk of the activities focused on penny stocks.

Among the most actively traded was Naim Indah Corp Bhd. In view of the sharp rise in price and volume for the stock, Bursa Malaysia issued a cautionary note to investors last Thursday. Following this, the company requested a one-day suspension in trading pending a material announcement.

The benchmark index added almost 23 points to finish at 1,561.7 last Friday. Market sentiment appears likely to stay firm in the near term. While smaller cap stocks are attracting renewed interest, gains for big cap blue chips may lag on the back of relatively rich valuations. Indeed, unless earnings results for 4QFY11, to be released over the next two weeks, register significant surprises on the upside, the FBM KLCI may continue to lag the regional turnaround.

Portfolio review
Note that this review is for a four-week period from Jan 16.

Stocks in our model portfolio outperformed the benchmark index over the past month. Total market value for our basket of 20 stocks was up by 3.84% to RM439,850, compared with the KLCI’s 2.53% gain.

Fourteen stocks in our portfolio closed higher while five ended in the red and one traded unchanged. Some of our notable gainers include Pantech Group Holdings Bhd (17.3%), Al-Hadharah Boustead REIT (BSDREIT) (9.9%), MyEG Services Bhd (6.3%) and DiGi.Com Bhd (5.9%). At the other end, Al-Aqar Healthcare REIT (-2.5%), Bumi Armada Bhd (-1.7%) and Bonia Corp Bhd (-4.8%) were among the bigger losers for the period under review.

Pantech shares did well after the company reported stronger earnings in its latest 3QFY12 ending February results. We expect earnings will continue to improve, underpinned by higher spending in the oil and gas sector. Pantech’s valuations remain attractive relative to both the industry and broader market.

Prices for BSDREIT also surged. We attribute this to the sharp rise in the real estate investment trust’s net assets following a revaluation of its properties. Net assets per unit rose to RM1.81 as at end-2011, up from RM1.43 at end-September.

Including our cash holdings, for which no interest income is imputed, our total portfolio value was up by a lower 2.38% to RM698,535. Our total profit is very substantial at RM538,535, of which RM400,948 has already been realised from previous shares sales.

Last week’s gain lifted our model portfolio’s cumulative returns since inception to 336.6% on our initial capital of just RM160,000. We continue to outperform the KLCI, which was up by about 141.4% over the same period, by some distance.

We acquired an additional 5,000 shares in Benalec Sdn Bhd, 10,000 shares in United Malayan Land Bhd (UM Land) and 3,000 shares in Alliance Financial Group Bhd (AFG) for a combined RM34,140. UM Land shares are currently trading at just about 0.5 times net assets of RM3 per share and could be up for a re-rating while AFG is trading at a reasonable price-to-net assets ratio, of 1.7 times, relative to the banking sector.

Our cash holdings were pared to RM224,545, following the acquisitions but continue to account for 32% of our total portfolio value. The relatively high percentage is, primarily, for prudence’s sake.


Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.


This article appeared in The Edge Financial Daily, February 13, 2012.



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CIMB Research has technical sell on AFG at RM3.88

KUALA LUMPUR (Feb 13): CIMB Equities Research has a technical sell on Alliance Financial Group at RM3.88, at which it is trading at a FY13 price-to-earnings of 11.4 times and at a price-to-book value of 1.7 times.

The research house said on Monday the uptrend from its September 2011 low is probably over.

“Prices violated the 30-day SMA on Friday and we see this as a prelude to more downside ahead. If we are right, the candles should also fall below its 50-day SMA soon,” it said.

CIMB Research said the indicators are showing signs of exhaustion. The bearish divergence on its MACD shows that selling pressure is picking up. RSI has also hooked down.

“Any rebound towards RM3.91-RM3.96 is an opportunity to take profits. However, always put a buy stop at RM4.05, just in case. Support is at RM3.70 and RM3.57,” it said.



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MIDF 'neutral' on banking sector

KUALA LUMPUR: MIDF Research is neutral on the banking sector as it expects net profits this year to be moderated by slower economic growth.

In a note today, MIDF said loan growth for this year was expected to be dampened and would grow at a slower rate of nine per cent.

It said exports and industrial production were expected to be affected by external environment.

"Eventhough the private sector is expected to cushion the impact from debt crisis and weaknesses of the advanced economies, overall, the growth of the domestic economy would still be impacted," it said.

MIDF said it expected the household sector loan growth to be trending lower for this year due to the new guidelines introduced by Bank Negara Malaysia on responsible financing to the retail sector.

"Judging from the key indicators, loan applications and approval slowed down in December 2011 which suggest a likelihood of a slower loan growth momentum moving into this year," it said.

It maintained its 'buy' calls on RHB Bank with a target price of RM9.20 and Alliance Financial Group Bhd at RM4.10.

Meanwhile, HwangDBS Vickers Research expected the banking sector's growth to be led by both retail and business loans.

In a note today, HwangDBS said last year's loan growth hit 13.6 per cent as per its forecast, boosted by 1.5 per cent growth in December 2011.

"Overall, loans growth grew by 12 per cent, while business loans grew by 15 per cent," it said.

HwangDBS has recommended a 'buy' call on Maybank with a target price of RM10.60 for its resilient transactional banking income and dividend yields.

It also picked Hong Leong Bank for the potential synergies as a newly-merged entity. -- BERNAMA



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MIDF Research remains Neutral on banking sector

KUALA LUMPUR (Jan 3): MIDF Research remains Neutral on the banking sector as it expects net profit of banks next year to be moderated by slower economic growth.

The research house said on Tuesday that although the Nov 2011 statistics showed an increase in growth rate of loan applications, the stronger growth rate was attributed to the effect of a lower base of loan applications in Nov 2010 which was lower by 6.7% compared to Oct 2010.

MIDF Research said it expects banks to be prudent and conservative in terms of capital management in light of the Basel III requirements especially for requirement for potential capital buffer even though as of now, all banks appeared to be comfortable in meeting the higher capital ratio requirements of Basel III.

“Our BUY calls on RHB CAP (TP: RM9.20) and AFG (TP: RM4.10) remained unchanged as of now. We have adjusted our TP for AFG to RM4.10 from RM3.84 previously based on 1.6x PBVR on FY13 BVPS.

“We are still NEUTRAL on AMBANK (TP: RM6.03), HONG LEONG BANK (TP: RM10.50), CIMB (TP: RM7.50), MAYBANK (TP: RM8.80) and PUBLIC BANK (TP: RM13.00),” it said.



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KLCI regains lost ground as bargain hunting picks up

KUALA LUMPUR (Dec 29): The FBM KLCI regained some lost ground at the mid-day break on Thursday on bargain-hunting activities, in line with the slight recovery at most regional markets.

At 12.30pm, the FBM KLCI rose 5.54 points to 1,509.65, lifted by gains including at banking and select blue chips. Gainers overtook losers by 369 to 213, while 304 counters traded unchanged. Volume was 891.7 million shares valued at RM511.81 million.

The ringgit fell 0.34% to 3.1770 versus the US dollar; crude palm oil futures for the third month delivery fell RM13 per tonne to RM3,172, crude oil gained six cents to US$99.42 while gold rose US$1/22 an ounce to US$1,556,65.

At the regional markets, the Shanghai Composite Index rose 0.33% to 2,177.23, Singapore’s Straits Times Index gained 0.14% to 2,669.99, South Korea’s Kospi was up 0.11% to 1,827.04 and Taiwan’s Taiex added 0.10% to 7,063.48.

Meanwhile, Hong Kong’s Hang Seng Index was down 0.91% to 18,349.90 and Japan’s Nikkei 225 shed 0.58% to 8,374.76.

On Bursa Malaysia, KLK rose 52 sen to RM23.10, Petronas Gas added 50 sen to RM15.60, BAT 30 sen to RM49.50, Petronas Dagangan 18 sen to RM17.38, MPI and Cocoaland 15 sen each to RM2.85 and RM2.15, Faber 13 sen to RM1.60 and Integra 12 sen to RM1.37.

Among the banking stocks, RHB Capital rose 16 sen to RM7.29, Hong Leong Bank eight sen to RM10.92, CIMB seven sen to RM7.17, Public Bank up four sen to RM13.16, AFG three sen to RM3.89, while HLFG and Affin added two sen to RM11.70 and RM3.05.

Utopia was the most actively traded stock with 119.92 million shares traded. The counter fell half a sen to 7 sen.

Other actives included Sanichi, KNM, JCY, Flonic and Sumatec.

Decliners this morning included Nestle, Southern Acids, Tasek, Fiamma, UMW, Y&G, APFT, Teck Guan and MAHB.



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Basel III for Malaysian banks

Banking sector
Bank Negara Malaysia (BNM) will raise the minimum Tier-1 capital ratio to 6% (from 4% currently under Basel II requirement) and common equity Tier-1 capital ratio to 4.5% (from 2% currently under Basel II), while maintaining total CAR (capital adequacy ratio) at 8%. In addition, banks are required to keep 2.5% capital conservation buffer overand- above the regulatory minimum.

Separately, BNM will also consider introducing a countercyclical capital buffer (between 0% to 2.5% of risk-weighted assets to be held in common equity) in line with Basel III, which is over and above the conservation buffer. The higher capital requirements will be implemented gradually beginning 2013 through 2015, and the capital conservation buffer between 2016 and 2019.

Banks will be required to report their leverage ratio positions calculated according to Basel III rules from June 2012. BNM will consider enhancing the liquidity coverage ratio and implement a net stable funding ratio (an incentive for banks to fund activities with more stable sources). The rules will likely be implemented from 2015 and 2018, respectively. All banks are expected to comfortably meet the 3% leverage level.

Malaysian banks are relatively small and have less complex activities compared with global banks. However, as Malaysian banks evolve to be regional players (as in the case of Maybank and CIMB), it will be crucial for them to be able to absorb external shocks and contagion risks. As such, BNM will assess at a later date the need for additional loss-absorbency requirements as required under Basel III (ranging from 1% to 3.5% comprising common equity, depending on the bank’s systemic importance).

We like AFG (Buy, TP:RM4.30) for its scalable domestic franchise and non-interest income traction, which ensures sustainable earnings and ROE. Among large caps, we prefer Maybank (Buy, TP:RM10.60) for its resilient transactional banking income and dividend yields. We also like HLB (Buy, TP:RM16.00) for merger synergies. — HwangDBS Vickers Research, Dec 22


This article appeared in The Edge Financial Daily, December 23, 2011.



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Non-interest income key drag on earnings for banks

Malaysian banks
Net interest income improved despite a softer net interest margin (NIM), thanks to loan growth (+4% quarter-on-quarter [q-o-q), 9MFY11: 9%). Non-interest income was the key drag on earnings with mark-to-market losses from interest rate swaps and derivatives, and lower fee income from treasury and unit trusts. These left pre-provision profits flat q-o-q.

Provisions fell due to recoveries coupled with higher provisions set aside in the quarter before. Gross non-performing loan (NPL) ratio improved to 3% against 3.2% in 2QFY11, while absolute NPLs fell further, easing concerns of asset quality stress. Malayan Banking Bhd’s (Maybank) NPL ratio continued to improve despite the uptick in PT Wahana Otomitra Multiartha Finance’s (WOM Finance) NPLs, as its used motorcycle exposure is largely contained.

Loan growth had moderated slightly since early 3QFY11, but loan applications and approvals surged in October this year. We are retaining our 14% loan growth target for FY11, but trim FY12’s marginally to 13% after cutting assumptions for CIMB Group and AMMB Holdings Bhd. New private debt security issuances grew 49% (RM56 billion until October 2011 against RM37 billion the same period last year) and the pipeline remains healthy.

We expect NIM to weaken further as competition for deposits drives up funding costs, while loan pricing remains competitive. Banks with Indonesian operations (BII and CIMB Niaga) are also expected to see weaker NIMs due to higher funding costs.



We sense that some local banks are shying away from competing in mortgages and are seeking to improve NIM by focusing on higher yielding auto, personal and SME loans. Asset quality should remain under control given Bank Negara Malaysia’s rules for prudent retail lending.

We like Alliance Financial Group (“buy”, target price [TP]: RM4.30) for its scalable domestic franchise and non-interest income traction, which ensures sustainable earnings and return on equity. Among large caps, we prefer Maybank (“buy”, TP: RM10.60) for its resilient transactional banking income and dividend yields. We also like Hong Leong bank Bhd (“buy”, TP: RM16) for merger synergies. — HwangDBS Vickers, Dec 5


This article appeared in The Edge Financial Daily, December 6, 2011.



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CIMB Research has technical buy on Alliance Financial Group at RM3.65

KUALA LUMPUR (Dec 2): CIMB Equities Research has a technical buy on Alliance Financial Group (AFG) at RM3.65 at which it is trading at a FY13 price-to-earnings of 10.7 times and price-to-book value of 1.6 times.

It said on Friday that AFG broke out of its consolidation triangle pattern on Thursday on rising volume.

“We anticipate the next up leg to lift prices towards the RM3.80 and RM4.00 resistances.

“Technical landscape is improving. MACD signal line has staged a positive crossover while RSI has also hooked upward,” it said.

CIMB Research said that aggressive traders may start to nibble now. However, always place a stop at below the resistance-turned-support channel (now at RM3.57).



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HDBSVR has buy on AFG, Maybank

KUALA LUMPUR (Dec 1): Hwang DBS Vickers Research has a Buy call on Alliance Financial Group (target price RM4.30) for its scalable domestic franchise and non-interest income traction, which ensures sustainable earnings and ROE.

It said on Thursday that among large caps, it prefers Maybank (Buy, TP RM10.60) for its resilient transactional banking income and dividend yields.

HDBSVR remains favourable on Hong Leong Bank (Buy, target price RM16) for synergies it will extract as a newly-merged entity, via improved net interest margins and presence in the automobile and small and medium enterprises segments.



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Hwang-DBS: No Alliance merger scheme

HWANG-DBS (M) Bhd yesterday dismissed media reports of a merger scheme with Alliance Financial Group Bhd (AFG).

"This is speculative and we have nothing to comment.

"So far the board has not deliberated on the possibility of any merger and we will take market conditions as a cue," its director Eric Ang told Business Times after Hwang-DBS' annual shareholders meeting at Hotel Equatorial.

Also present was director Alex Hwang Lip Teik.

When asked to comment on reports if banking giant DBS Group Holdings Ltd was a key player in merger talks, Ang who is also the managing director and head of capital markets group for DBS Bank of Singapore said: "The current state of our partnership is already working very well." He did not elaborate.

DBS Bank owns 28 per cent of Penang-based Hwang-DBS, which has a market capitalisation of RM595 million and is involved in stockbroking, wholesale banking and consumer finance.

For its 2011 fiscal year ended July 31, Hwang-DBS' net profit rose 42 per cent to RM91.46 million. This compares with RM64.4 million the year before. Revenue came in at RM399.3 million against RM346.9 million previously.

Meanwhile, Hwang-DBS is upgrading its Internet trading system infrastructure to take advantage of the increasing growth rate of Malaysia's Internet-banking platform.

"We are looking at an initial investment outlay of between RM1 million and RM2 million and we hope to implement our new Internet trading strategies by next year," he added.



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Muted reaction to Hwang-DBS and AFG merger talks

KUALA LUMPUR: The shares of Hwang-DBS (M) Bhd and Alliance Financial Group Bhd (AFG) saw little movement yesterday, following a report of a possible merger between the two.

AFG closed six sen higher at RM3.46 yesterday while Hwang-DBS closed three sen higher at RM2.33 on light trading volume.

Analysts have not ruled out the possibility of a merger taking place.

“It is possible. After all, they are both controlled by the same shareholders, the government of Singapore,” said a banking analyst.

It has been long rumoured that DBS Group Holdings Ltd, which owns 28% of Hwang-DBS, was eyeing the controlling stake in AFG held by Temasek Holdings.

Temasek has a 49% stake in Vertical Theme Sdn Bhd, the holding company that owns 29% in AFG. The remainder of Vertical is owned by Langkah Bahagia Sdn Bhd, which is said to have close ties with former finance minister Tun Daim Zainuddin.

The Employees Provident Fund (EPF) is the second largest shareholder in AFG with a 12% stake.

Temasek had a 12.06% stake in DBS, as at Feb 28, 2011.

Hwang-DBS has a market capitalisation of RM890 million while AFG has about four times that, at close to RM3.4 billion, based on yesterday’s closing price.

Neither AFG nor Hwang-DBS had issued a statement on the rumoured marriage at press time.

An analyst said a merger makes sense to create a banking group with strong banking and stock broking divisions.

“Rather than starting the business on your own, it is better to merge and grow,” said the analyst.

AFG is a favoured banking stock among analysts given its undemanding valuations and good growth prospects.

For 2QFY12 ended Sept 30, 2011, it posted net profit of RM120.95 million, up 18% from RM102.27 million the previous corresponding quarter. Revenue rose 6% to RM314.6 million from RM296.98 million.

The better performance was attributed to better loan growth, non-interest income and improvement in asset quality.

Hwang-DBS, meanwhile, posted a net profit of RM86.61 million for FY11 ended July, up 42% from RM60.87 million a year ago. Revenue increased by 15% to RM399.33 from RM346.94 million.

The banking industry is expected to see tougher environment in the near term given the global economic headwinds.

OSK Research, for one, does not expect a meltdown in asset quality or liquidity, but holds the view that earnings growth momentum has slowed significantly, as reflected in the industry’s paltry pre-provision operating profit growth of 1.3% in the first nine months of the year.

“As growth is expected to moderate even more in 2012, we believe that consensus’ double digit earnings growth projection for 2012 may be a little stretched,” it said in its recent note.

It noted that valuations may not be excessive compared with the sector’s near record-high return on equity (ROE) of 15.8% currently.

It said the upcoming quarter’s earnings underperformance and downgrades may be the catalysts for a further de-rating in sector valuations.

OSK’s buys include Malayan Banking Group Bhd (fair value RM9.60), RHB Capital Bhd (RM9.90), Hong Leong Bank Bhd (RM12.15) and AFG (RM3.80).

It is neutral on CIMB Group Holdings Bhd, with a fair value of RM7.62, Public Bank Bhd (RM14) and AMMB Holdings Bhd (RM6.95).

Analysts said the latest guidelines introduced by Bank Negara Malaysia to promote more prudent lending will not hinder bank growth. The new guidelines include taking due consideration of borrowers’ repayment capability based on their net pay rather than gross pay.


This article appeared in The Edge Financial Daily, November 24, 2011.



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Hwang-DBS and AFG in possible merger exercise

PETALING JAYA: The market is rife with talk that Hwang-DBS (Malaysia) Bhd and Alliance Financial Group Bhd (AFG) are looking at a merger exercise.

A key player in the talks is said to be Singapore banking giant DBS Group Holdings Ltd.

DBS Bank owns 28% of investment bank Hwang-DBS and it has been long rumoured that DBS might also secure a controlling stake in AFG by buying over Temasek Holdings' indirect 29% stake in AFG.

“A local bank aiming to merge with another local bank definitely looks better than a foreign bank buying up a local outfit. It can smoothen the discussion process,” said an industry observer.

It is also possible that Hwang-DBS and AFG are in talks to merge some of their units, rather than a full-scale merger of the two financial institutions.

Hwang-DBS has a total equity of RM890mil while AFG has about four times that, at close to RM3.4bil.

Hwang-DBS declined comment, while AFG said: “We do not comment on market speculation.”

Shares in AFG have climbed 15% in the past six months.

Singapore investment firm Temasek has a 49% stake in Vertical Theme Sdn Bhd, the holding company that owns 29% in AFG.

It has been widely reported that Temasek might be planning to consolidate its banking assets under one umbrella, which is its 28%-owned DBS. DBS has long expressed its intention to become a leading pan-Asian bank.

It has also been reported that Temasek might hive off its stake in AFG to DBS to pave the way for the latter's entry into the Malaysian market.

Industry sources also said that Temasek could be close to finalising its acquisition of the other 51% in Vertical Theme, which is held by Langkah Bahagia Sdn Bhd, a company believed to be linked to former finance minister Tun Daim Zainuddin. The Employees Provident Fund (EPF) is the second largest shareholder in AFG with a 12% stake.

Temasek, as at press time, had yet to respond to StarBiz queries via email.

Temasek first came into AFG as a shareholder in 2005 after it acquired a controlling stake, together with Langkah Bahagia.

Sources said Langkah Bahagia's entry into AFG was at a low cost.

Hence, there should not be too much of haggling on pricing on its part.

Bank Negara's approval is needed for any discussion to first take place.

Shares in AFG have climbed 15% in the past six months.

Hwang-DBS started operations in Penang in the early 1970s and was one of the first stockbrokers to receive the Universal Broker status from the Securities Commission in 2001. It became a full-fledged investment bank in 2007.



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