KUALA LUMPUR: RHB Research Institute has initiated coverage on Alliance Financial Group (AFG) as it is a laggard following the underperformance of its share price in 2009 and year-to-date 2010 on concerns about leadership, CLOs and asset quality.

It said on Tuesday, Feb 9 that most concerns have been addressed, barring a void in leadership for a prolonged period of time.  

All exposure to CLOs will be fully provided for by FY03/10 while asset quality is intact despite relatively higher exposure to higher risk loans.  

RHB Research said earnings growth from strong franchise and absence of non-recurring items.  Potential earnings kickers in the form of write back from CLOs or pre-emptive provisioning in view of the economic recovery and strong asset quality.

Robust capital ratios, undemanding valuations (at bottom end of valuations among peers) and low foreign shareholding.  

"Ready to catch up.  Hence, we are initiating coverage with an Outperform call on the stock.  Fair value is pegged at RM3.27 based on 15 times (1.0 times discount to sector benchmark) CY10 EPS," it said.