KUALA LUMPUR (May 28): Hong Leong IB Research has downgraded Alliance Financial Group Bhd (AGF) to “Hold” at RM4.64 with a lower target price of RM4.92 (from RM5.25) and said AFG’s FY03/15 results below HLIB and street expectations due to one-off interest income adjustment and huge MTM loss.

In a note today, the research house said ex adjustment, NIM still lower albeit above 2%, partly offset by continued above-industry loans growth.

HLIB Research said AGF’s second interim dividend of 6.4 sen took FY15 to 15.4 sen (45% payout), lower than 60% policy. 

The research house said future payout likely around 45%.

HLIB Research said deposits growth was also above industry, CASA still among highest in industry.

“To continue focus on SME and deposit niche, reduce investment volatility, enhance customer flow business and extract values from underleveraged customer base.

“Slight strategic shift to risk adjusted return which means slower loans growth.   

“FY16 ROE KPI lower at 12-13% on challenging environment, slower loans growth and NIM compression. 

“FY16-17 cut 15% to lower end of KPIs, downgrade to Hold as target price cut to RM4.92 (Gordon Growth (ROE of 12.2% and WACC of 9.5%) vs. RM5.25,” it said.