CIMB Research maintains Underperform on AFG

KUALA LUMPUR: CIMB Equities Research is maintaining its Underperform recommendation on Alliance Financial Group (AFG).

The research house said on Thursday, Aug 18 Alliance’s 1QFY3/12 results conference call held no major surprises and left it with unchanged views, earnings numbers and DDM-based target price of RM3.20.

“The main point we took away was its continuous focus on expanding fee income, primarily from transactional banking, treasury and investment banking,” it said.

CIMB Research pointed out that while the faster expansion of fee income in 1Q is positive, it added the bank needed to tackle its subpar loan growth of 5%.

The research house said stronger loan growth was needed to sustain the momentum in the long term since loan growth reflects the rate of customer acquisition.

“On this score, we retain our Underperform rating. The stock could be de-rated by (1) worse-than-expected margin erosion, (2) a weaker trend for non-interest income, and (3) a slower-than-expected recovery of loan growth. We prefer Maybank for exposure to the sector,” it said.