ALLIANCE FINANCIAL GROUP

KENANGA Research maintained its view of a challenging year ahead for Alliance Financial Group (AFG) following the prospect of moderate loans growth.

The research house expected FY18 to be challenging due to higher opex as its management rolls out new innovative products, and due to higher allowances for impairments.

It said the management had guided for FY18 cost to income ratio of below 51% and credit costs of between 30bps-35bps with conservative loans growth at mid-single digit.

It said that it, however, expected better net interest margin (NIM) due to the focus on better yield loans.

“We understand that management will not focus on mortgage loans in anticipation of NSFR9.

“Loans stream is expected by Q3 with a good pipeline coming from corporate supported by growth in unsecured loans and SME,” Kenanga Research said.

Kenanga Research added that the management was also encouraged by the strong acceptance of its Alliance One Product which grew by about RM300mil by July 2017.

The research house noted that AFG was also expected to introduce cost-saving measures such as mutual separation scheme (MSS) or a voluntary separation scheme (VSS) in the second half of 2018, which will result in about RM5mil in savings for FY18.

For the first quarter, AFG saw core net profit improve 1.9% albeit easing year-on-year as a spike in impairment allowances offset topline growth.