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PP 7767/09/2010(025354)

24 August 2010
RHB Research
Corporate Highlights Institute Sdn Bhd

Malaysia
A member of the
RHB Banking Group
Company No: 233327 -M

B r ief ing Not e


24 August 2010
MARKET DATELINE

Affin Holdings Share Price


Fair Value
:
:
RM3.06
RM4.10
Loan Growth Momentum Appears Sustainable Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (AFFIN; Code: 5185) Bloomberg: AHB MK


Net EPS Net Net
FYE PBT Profit EPS Gwth PER Book P/Book C.EPS* DPS Div Yld ROE
Dec (RMm) (RMm) (sen) (%) (x) (RM/s) (x) (sen) (sen) (%) (%)
2009 497.2 371.8 24.9 27.0 12.3 3.17 1.0 - 6.4 2.1 8.1
2010f 646.7 483.7 32.4 30.1 9.5 3.43 0.9 29.4 6.4 2.1 9.8
2011f 687.8 514.5 34.4 6.4 8.9 3.71 0.8 33.1 6.4 2.1 9.6
2012f 712.5 533.0 35.7 3.6 8.6 4.00 0.8 36.3 6.4 2.1 9.3
Main Maket Listing / Trustee Stock / Non-Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

♦ Affin yesterday held an analyst briefing with respect to its 2QFY12/10 Issued Capital (m shares) 1,494.6
results. We set out below the key highlights from the briefing. Market Cap (RMm) 4,573.4
Daily Trading Vol (m shs) 1.6
♦ Strong loan growth to continue … Management, in our view, appeared 52wk Price Range (RM) 1.83 - 3.29
optimistic that the group would be able to sustain the strong loan growth Major Shareholders: (%)
seen thus far (2Q10: +4.8% qoq; +15.4% yoy vs. 1Q10: +4.6% qoq; LTAT 35.7
+13.7% yoy) with the focus appearing broad-based, i.e. business banking, Bank of East Asia 23.5
SMEs and consumer. The pipeline for loan applications and approvals, Boustead Holdings 20.7
according to management, remains strong and this should bode well for
the group ahead. FYE Dec FY10 FY11 FY12
EPS chg (%) - - -
♦ … but no compromise on asset quality. Notwithstanding the strong Var to Cons (%) 10.2 3.9 (1.8)
loan growth, management was optimistic that asset quality would not be
compromised, thanks to its risk management framework that the group PE Band Chart
has in place. This would include upgrading of its loan grading system as
well as training for their credit officers. 1H10 credit cost stood at 13bps,
PER = 15x
inclusive of the RM30m provision for legal suit (see below). PER = 12x
PER = 9x
♦ Potential further provision for legal suit a slight dampener. We PER = 6x
clarified with management regarding the RM30m provision for a legal suit.
As mentioned in our report yesterday, we do note that Affin had paid a
total sum of RM48.2m for the legal suit, which comprise RM30m together
with interest and costs. The case is currently under appeal, but should
Affin lose the appeal, management said that the balance of RM18.2m (1.2 Relative Performance To FBM KLCI
sen/share) would need to be charged to the income statement. We are
keeping our numbers unchanged as we had imputed in our model a more
conservative credit cost assumption of 38bps for FY10. Affin Holdings

♦ FY10 KPIs kept unchanged, which we think would be comfortably


met. Affin’s headline KPIs for FY10 remained unchanged, i.e.: 1) ROE and
ROA of 8.4% and 1% respectively; 2) net NPL ratio of 1.9%; and 3) EPS of
FBM KLCI
27.5 sen. Management maintained their commitment to a minimum gross
DPS of 8 sen. Our FY10 ROE and EPS projections are currently above the
KPIs set above. Nevertheless, we are comfortable with our numbers,
backed by the strong set of 2Q results as well as loan applications and
approvals pipeline. Should the group continue to sustain the low credit cost
seen in 1H10, this help could provide a further boost to earnings ahead.

♦ More collaboration ahead with BEA? Management indicated that there


could be more collaboration ahead with BEA and this could include areas
such as the trade business, training for staff and capital market deals.

♦ Forecasts. We have left our earnings forecasts unchanged.

♦ Investment case. Our indicative fair value of RM4.10 remains unchanged David Chong, CFA
and is based on target CY11 PER of 12x. Outperform call maintained. (603) 9280 2186
david.chong@rhb.com.my

Please read important disclosures at the end of this report.


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24 August 2010

Table 2 : Earnings Forecasts Table 3 : Ratio Analysis & Forecast Assumptions


FYE Dec (RMm) FY09 FY10F FY11F FY12F FYE Dec FY10F FY11F FY12F

Net Interest Income 969.9 1,045.0 1,124.6 1,179.4 Asset Quality (%)
(+ Islamic Banking) Gross impaired loans ratio 3.50 3.30 3.10
Non-interest Income 304.3 319.6 335.5 352.3 Net impaired loans ratio 2.99 2.90 2.72
Operating Income 1,274.2 1,364.5 1,460.1 1,531.7 Ind. allow / Impaired loans 15.0 12.5 12.5
Collective allow. / Net Loans 1.81 1.76 1.76
Less: Overhead Loan Loss Coverage 66.4 65.5 69.0
Expenses (604.5) (634.7) (666.5) (699.8) Core Capital Ratio 12.0 11.8 11.8
Pre-impairment RWCAR 13.6 13.3 13.3
Profit 669.7 729.8 793.7 832.0
Margins (%)
Less: Impairment Yields On Earnings Assets 4.05 4.03 4.00
losses on loans (185.1) (95.9) (118.8) (133.1) Avg. Cost Of Funds 2.03 2.03 2.03
Operating Profit 484.7 633.9 674.8 698.9 Interest Spread 2.02 2.00 1.97
Un-adj NIM (ex-Islamic Inc) 2.21 2.18 2.14
Associates 12.5 12.7 13.0 13.7 Adjusted NIM (+Islamic Inc) 2.64 2.60 2.54
Pretax Profit 497.2 646.7 687.8 712.5
Profitability (%)
Less: Tax (125.3) (163.0) (173.3) (179.6) ROE 9.8 9.6 9.3
Effective Tax Rate 25.2 25.2 25.2 25.2 ROA 1.15 1.10 1.06
(%) Cost / Income Ratio 46.5 45.6 45.7
Profit After Tax 371.8 483.7 514.5 533.0 Expenses / Avg. Assets 1.50 1.42 1.38
Provisions / Avg. Net Loans 0.40 0.43 0.45
Minorities 0.0 0.0 0.0 0.0
Net Profit 371.8 483.7 514.5 533.0 Liquidity (%)
Source: Company data, RHBRI estimates Loan Deposit Ratio 82.7 82.8 82.8
Net / Gross Loan Growth 16.0 10.1 8.0
Deposit Growth 10.0 10.0 8.0
Source: RHBRI estimates

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or
be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives
of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or
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services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
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The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

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Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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securities, subject to the duties of confidentiality, will be made available upon request.

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actions of third parties in this respect.

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