Affin Holdings Bhd (Dec 2, RM2.99)
Maintain underperform at RM2.94 with fair value of RM2.05: Management guided for loan growth of 13% to 14% this year (2010: 17.1% year-on-year), slightly below the earlier guided 13% to 15% but in line with annualised loan growth of 12.9% for 9MFY11. For 2012, the focus is on preserving asset quality and capital, in light of the challenging macro environment ahead. As such, Affin does not plan to grow its loan book aggressively, and instead guided for loan growth to slow down further to 9% to 10%. We assume 2011 and 2012 loan growth of 11% and 9% respectively, which we leave unchanged for now.
For 3QFY11, net interest margin (NIM) fell 10 basis points (bps) quarter-on-quarter (q-o-q), which Affin said was due to competition on both lending and, especially, deposit gathering. Management thinks 3Q NIM could have bottomed out and hopes to sustain current levels, citing measures such as controlled loan growth and pricing strategies. However, while Affin’s balance sheet appears liquid (loan deposit ratio [LDR] of 75.3%), there may not be much room here to help NIMs as the liquidity resides at the Islamic bank (LDR of 55% to 60%) while the commercial bank’s LDR is at a higher 80% to 85%. We have assumed NIM contraction of 17bps in 2011 and another 3bps decline in 2012.
For 3QFY11 net profit was boosted by recoveries of RM123 million, which in turn was helped by recoveries from some large corporate accounts. Thanks to the rise in collateral values, some of the collateral was more than sufficient to cover the outstanding principal. Nevertheless, management does not expect such recoveries to be sustainable ahead. Thus, the emphasis on preserving asset quality so as to keep credit cost low.
Affin’s interim gross dividend per share (DPS) of 12 sen (ex date is Dec 6) beat our initial 10 sen expectation. Management hinted at the possibility of a final dividend. Assuming a net payout ratio of 40% (close to the larger banks and our 38% assumption for AFG), we estimate a potential final gross DPS of 5.5 sen or full-year net yield of 4.4%.
We make no change to our earnings forecasts and maintain our fair value of RM2.05 (based on the average values derived from target CY12 price-earnings ratio of 6.5 times and target CY12 price-to-book value of 0.5 times) and “underperform” call. We remain concerned about the group’s ability to grow income, given slowing loan growth and NIM pressures. Already, 3QFY11 operating income fell 5% q-o-q. With recoveries unlikely to be sustained, this will put upward pressure on credit cost, further adversely affecting earnings growth ahead, in our view. — RHB Research, Dec 2
This article appeared in The Edge Financial Daily, December 5, 2011.
Maintain underperform at RM2.94 with fair value of RM2.05: Management guided for loan growth of 13% to 14% this year (2010: 17.1% year-on-year), slightly below the earlier guided 13% to 15% but in line with annualised loan growth of 12.9% for 9MFY11. For 2012, the focus is on preserving asset quality and capital, in light of the challenging macro environment ahead. As such, Affin does not plan to grow its loan book aggressively, and instead guided for loan growth to slow down further to 9% to 10%. We assume 2011 and 2012 loan growth of 11% and 9% respectively, which we leave unchanged for now.
For 3QFY11, net interest margin (NIM) fell 10 basis points (bps) quarter-on-quarter (q-o-q), which Affin said was due to competition on both lending and, especially, deposit gathering. Management thinks 3Q NIM could have bottomed out and hopes to sustain current levels, citing measures such as controlled loan growth and pricing strategies. However, while Affin’s balance sheet appears liquid (loan deposit ratio [LDR] of 75.3%), there may not be much room here to help NIMs as the liquidity resides at the Islamic bank (LDR of 55% to 60%) while the commercial bank’s LDR is at a higher 80% to 85%. We have assumed NIM contraction of 17bps in 2011 and another 3bps decline in 2012.
For 3QFY11 net profit was boosted by recoveries of RM123 million, which in turn was helped by recoveries from some large corporate accounts. Thanks to the rise in collateral values, some of the collateral was more than sufficient to cover the outstanding principal. Nevertheless, management does not expect such recoveries to be sustainable ahead. Thus, the emphasis on preserving asset quality so as to keep credit cost low.
Affin’s interim gross dividend per share (DPS) of 12 sen (ex date is Dec 6) beat our initial 10 sen expectation. Management hinted at the possibility of a final dividend. Assuming a net payout ratio of 40% (close to the larger banks and our 38% assumption for AFG), we estimate a potential final gross DPS of 5.5 sen or full-year net yield of 4.4%.
We make no change to our earnings forecasts and maintain our fair value of RM2.05 (based on the average values derived from target CY12 price-earnings ratio of 6.5 times and target CY12 price-to-book value of 0.5 times) and “underperform” call. We remain concerned about the group’s ability to grow income, given slowing loan growth and NIM pressures. Already, 3QFY11 operating income fell 5% q-o-q. With recoveries unlikely to be sustained, this will put upward pressure on credit cost, further adversely affecting earnings growth ahead, in our view. — RHB Research, Dec 2
This article appeared in The Edge Financial Daily, December 5, 2011.
